Assured Guaranty Files Lawsuit Challenging Constitutionality of Board Appointments to Puerto Rico’s Financial Oversight and Management Board

Oversight Board believes it is accountable to no one with respect to whether fiscal plans comply with the statutory requirements imposed by PROMESA


Monday, July 23, 2018 4:22 pm EDT



Public Company Information:

"By enacting PROMESA, Congress intended to encourage consensual settlements between creditors and Puerto Rico, including its instrumentalities, in order to restore the capital market access necessary for Puerto Rico to achieve a sustainable economic recovery. This mandate has been turned on its head by the Oversight Board"

HAMILTON, Bermuda--(BUSINESS WIRE)--Two bond insurance subsidiaries of Assured Guaranty Ltd. (NYSE: AGO)(together with its subsidiaries, Assured Guaranty) have filed an adversary complaint challenging the constitutionality of appointments to the Financial Oversight and Management Board for Puerto Rico (Oversight Board). The lawsuit contends that appointments to the Oversight Board violated the Appointments Clause of the United States Constitution, and asks the Title III Court to dismiss the Puerto Rico Highways and Transportation Authority’s (“HTA”) Title III petition based on the Oversight Board’s lack of lawful authority to initiate such Title III proceeding. Given the Title III Court’s recent dismissal of a similar lawsuit filed by another party in the Commonwealth of Puerto Rico’s Title III case, Assured Guaranty expects to participate in the appellate phase of the various Appointments Clause lawsuits. Assured Guaranty’s decision to file this lawsuit was necessitated by the manifest constitutional defects in the Oversight Board’s appointment process and its consistent pattern of exceeding its legal authority and disregarding the creditor protections and legal requirements built into the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA).

For over 30 years, Assured Guaranty has helped more than 10,000 local, state and territorial governments more affordably fund public projects such as the construction of hospitals, schools, roads and bridges. Puerto Rico has utilized Assured Guaranty bond insurance to reduce its cost of borrowing in the municipal bond market in order to finance a wide range of projects, and the associated savings benefited Puerto Rico as soon as the bonds were issued. Today, more than $5 billion of those insured bonds are outstanding, and Assured Guaranty has already paid more than $820 million to cover Puerto Rico’s failure to honor its commitment to pay the debt service on those bonds. Assured Guaranty has not acquired its exposure through purchases of discounted bonds, but rather through its role as a long-term partner of the island. Assured Guaranty guarantees the full payment of the insured bonds’ principal and interest and is obligated to cover defaults for the life of the bonds. It has a long-term commitment to the health of the Puerto Rico economy.

Puerto Rico’s long-term economic sustainability depends on future investment and access to capital markets. Investors will not be willing to make those investments if previous agreements are not honored. Assured Guaranty has in many instances come to the aid of other distressed issuers to arrive at good faith consensual resolutions that help municipalities regain their financial footing and promote the best long term interests of all parties involved. However, since its inception, the Oversight Board has failed to engage meaningfully with Assured Guaranty and other creditors and stakeholders, as it was mandated to do under PROMESA.

“By enacting PROMESA, Congress intended to encourage consensual settlements between creditors and Puerto Rico, including its instrumentalities, in order to restore the capital market access necessary for Puerto Rico to achieve a sustainable economic recovery. This mandate has been turned on its head by the Oversight Board,” said Assured Guaranty President and CEO Dominic Frederico. “Although we originally believed the PROMESA framework, however imperfect, would minimize political interference, accelerate the necessary negotiations, and curtail litigation that would impede the island’s recovery, the board members’ disregard for the rule of law has had the opposite effect, leading us to reexamine the manner in which they were appointed.”

The Oversight Board’s decisions have harmed Puerto Rico’s recovery effort. The Commonwealth and HTA are in dire need of a speedy resolution of their fiscal distress, and the Oversight Board, with its failure to advance consensual settlements with Commonwealth and HTA creditors, has been co-opted by a group of high-priced attorneys, consultants and lobbyists who profit from a drawn-out process and continued litigation – all while the people of Puerto Rico suffer.

As stated in the complaint, none of the Oversight Board members were appointed in conformity with the Appointments Clause. Rather, under PROMESA’s appointments procedures, the Oversight Board members were effectively chosen by individual members of Congress and were never confirmed by the U.S. Senate. There is no historical precedent for this unique structure, which dismantles significant constitutional safeguards designed to prevent congressional encroachment upon the Executive Branch and to ensure public accountability for the appointment process. Further, in another Puerto Rico-related lawsuit, we note the U.S. Court of Federal Claims recently found that the Oversight Board is a Federal Government entity, a conclusion squarely at odds with a key part of the Title III Court’s decision to dismiss the Appointments Clause lawsuit in the Commonwealth’s Title III case.

Though the Oversight Board is bound by PROMESA (its founding statute), it has failed:

(i) to comply with both the letter and spirit of PROMESA ;

(ii) to respect the rule of law and sanctity of property rights; and

(iii) to accept clear congressional intent that constitutional and statutory debt payment priorities and liens established under Puerto Rico law must be respected under PROMESA.

By asserting a level of discretion and legal authority that PROMESA does not grant them, the unconstitutionally appointed Oversight Board members have claimed an insulation from accountability and judicial review that threatens not only Puerto Rico’s economic recovery but also the rules-based order on which our financial and legal systems depend.

Because the Oversight Board was unconstitutionally appointed, the actions it has taken since its inception are therefore void, including its approval of fiscal plans for the Commonwealth and HTA that violate PROMESA and allocate $1.5 billion for litigation and related expenses without providing for debt service.

Assured Guaranty believes Puerto Rico’s recovery can succeed only with fiscal plans that comply with PROMESA, pave the way to future capital market access by assuring transparency and accountability, and most importantly, lay the groundwork for a sustainable economic future for the people of Puerto Rico.

Assured Guaranty remains committed to work constructively with the Puerto Rico government, the U.S. Congress and the Administration to restore stability and prosperity in Puerto Rico.

About Assured Guaranty

Assured Guaranty helps provide funding for public projects such as the construction of hospitals, schools, roads and bridges in Puerto Rico and in cities and communities across America with the goal of helping municipal governments gain access to funding for essential public projects at affordable interest rates.

Assured Guaranty Ltd. is a publicly traded (NYSE: AGO) Bermuda-based holding company. Its operating subsidiaries provide credit enhancement products to the U.S. and international public finance, infrastructure and structured finance markets. More information on Assured Guaranty Ltd. and its subsidiaries can be found at

Forward-Looking Statements

The information set out above contains forward-looking statements that reflect Assured Guaranty’s current views with respect to future events and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve risks and uncertainties that may cause actual results to differ materially from those set forth in these statements. These risks and uncertainties include, but are not limited to, those resulting from Assured Guaranty's inability to execute its strategies, including its loss mitigation and risk remediation strategies, and negative developments that may impact Assured Guaranty's liquidity and capital, and other risks and uncertainties that have not been identified at this time, management's response to these factors, and other risk factors identified in Assured Guaranty’s filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which are made as of July 23, 2018. Assured Guaranty undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.


Assured Guaranty Ltd.
Robert Tucker, 212-339-0861
Senior Managing Director, Investor Relations and Corporate Communications
Ashweeta Durani, 212-408-6042
Vice President, Corporate Communications