AMBAC, FGIC Demand Puerto Rico Transfer Taxes to Bondholders

Will Puerto Rico Pay Up by Jan. 1?
  • Push to claw back funds violates local and U.S. law, they say
  • Firms guaranteee $900 million of debt by island authority

Two companies that guarantee almost $900 million of debt issued by a Puerto Rico government authority and backed by federal taxes on rum demanded the commonwealth return as much $94 million of revenue it diverted from bondholders to pay other creditors.

Ambac Assurance Corp., a unit of Ambac Financial Group Inc., and Financial Guaranty Insurance Co. made their case in a letter to Puerto Rico Governor Alejandro Garcia Padilla. They said that the plan to divert rum-tax revenue pledged to $1.9 billion of bonds issued by the Puerto Rico Infrastructure Financing Authority violated the commonwealth’s constitution as well as the takings, contracts and due process clauses of the U.S. Constitution.

The “pattern of activity is unacceptable,” Nader Tavakoli, executive chairman of Ambac Assurance, and Derek Donnelly, a senior managing director at FGIC, said in the letter released Tuesday. The companies haven’t filed a legal action.

Ambac and FGIC demanded the commonwealth return the tax revenue to a fund maintained on behalf of PRIFA bondholders and that it cease all efforts to claw back more money. PRIFA owes $37.2 million of interest in January, which it expects to pay with reserve cash.

Puerto Rico and its agencies owe nearly $1 billion in interest payments Friday, including $357 million on general-obligation debt that the Caribbean island’s constitution says must be paid before everything else. Officials have until late Monday night because of the New Year’s holiday.

Shares of Ambac have declined 39 percent this year. The stock rose 2.5 percent to $14.97 on Tuesday.

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