PREPA bond insurer challenges constitutionality of PROMESA

By The Star Staff

Puerto Rico Electric Power Authority (PREPA) bond insurer Assured Guaranty has filed for a second time a constitutional challenge to the federal law overseeing PREPA’s bankruptcy.

Assured Guaranty Corp. and Assured Guaranty Municipal Corp. are arguing that the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA) violates the uniformity clause of the U.S. Constitution. The clause establishes that a bankruptcy statute must apply uniformly to a defined class of debtors.

Assured had challenged PROMESA because the law treated Puerto Rico differently from other U.S. jurisdictions. The challenge was part of its objection to PREPA’s debt adjustment plan to restructure the utility’s $9 billion debt.

After the U.S. government announced plans to defend PROMESA’s constitutionality, U.S. District Judge Laura Taylor Swain, who is overseeing PREPA’s bankruptcy case, ended all objections to PREPA’s debt adjustment plan after PREPA filed a third amended debt adjustment plan. The judge’s decision forced stakeholders to start all complaints again.

Assured did not provide reasons for renewing its challenge. The judge in the past has dismissed arguments that PROMESA violates the uniformity clause.

However, in its first objection, the bond insurer said the old ruling no longer applies because circumstances have changed.

GoldenTree Asset Management LP, which holds $828 million in PREPA bonds, has challenged the debt adjustment plan, arguing that it violates both the spirit and the letter of applicable law as some bondholders get better treatment than others despite having the same type of claim.