Puerto Rico is facing its first lawsuit over how the U.S. territory has diverted funds to meet certain bond payments as it struggles with a worsening economic crisis.
Gov. Alejandro Garcia Padilla said Friday that the lawsuit filed by Assured Guaranty Ltd. and Ambac Financial Group Inc. will provoke other creditors to rush to court. The bond insurers claim that the government’s move is violating the U.S. Constitution.
Garcia warned that Puerto Rico does not have the legal structure to deal with such lawsuits and called on U.S. Congress to provide the island with a restructuring mechanism.
The lawsuit filed late Thursday comes a week after Garcia announced that the government would meet $594 million in bond payments due this week but would default on $37 million in interest.