On June 15, 2016, National Public Finance Guarantee Corporation, an indirect subsidiary of MBIA Inc. (“NPFG”) commenced an action in the United States District Court for the District of Puerto Rico against the Governor of Puerto Rico and certain other officials in an action styled under the caption National Public Finance Guarantee Corporation v. Alejandro Gracia Padilla et. al, No. 16-CV-2101 (FAB), seeking a declaratory judgment that Puerto Rico’s Emergency Moratorium and Financial Rehabilitation Act (the “Moratorium Act”) adopted by Puerto Rico is preempted by the Bankruptcy Code and violates the United States Constitution.

Puerto Rico enacted the Moratorium Act on April 6, 2016, and empowers the Governor to issue executive orders declaring a state of emergency with respect to the Commonwealth or any other government entity in the Commonwealth. The Governor is also authorized to suspend payment of covered obligations of the covered entities. As previously reported, Governor Padilla issued Executive Order OE-2015-046, instructing the retention or transfer of revenues pledged by the Puerto Rico Highways and Transportation Authority (PRHTA), the Puerto Rico Infrastructure Financing Authority (PRIFA), the Metropolitan Bus Authority (AMA), the Integrated Transport Authority (ITA) and the Puerto Rico Convention Center District Authority (PRCCDA) as security for bonds previously issued by those agencies. In this action, NPFG is challenging the constitutionality of the Governor’s executive orders authorizing the clawback of certain revenues pledged by PRHTA, PRCCDA and PRIFA.

NPFG alleges that the Moratorium Act permits the Governor to restructure the debts of Puerto Rican governmental instrumentalities and, as a consequence, is preempted by the Bankruptcy Clause of the United States Constitution and the Bankruptcy Code. NPFG also asserts that the executive orders violate the Takings Clause and the Contracts Clause and violates access to federal courts.