A U.S. District Court in Puerto Rico joined two lawsuits over the island nation's debt default on Thursday in order to save time and money and avoid inconsistent rulings.
Financial Guaranty Insurance Company, or FGIC, sued Puerto Rico on Tuesday for diverting US$164 million in revenue streams meant to pay the country's debt.
Similarly, bond insurers Assured Guaranty and Ambac Financial, filed lawsuits earlier this month against Puerto Rican government officials over how they diverted tax revenues to meet certain bond payments amid an economic crisis.
The cases, both filed in U.S. federal court in Puerto Rico, are the first against Puerto Rico since Governor Alejandro Garcia Padilla called the U.S. territory's US$70 billion debt load "unpayable" last June.
Because Puerto Rico is a U.S. territory, it does not have the right that U.S. states have to renegotiate its debt. Instead it must negotiate with each individual bondholder.
IN DEPTH: Puerto Rico’s Struggle Against Debt
However, the U.S. Congress is considering a White House plan to address the territory of Puerto Rico’s debt crisis by creating a federal oversight body to handle the restructuring of some of the island’s US$72 million debt.
The news of the lawsuit takes place as U.S. Treasury Secretary Jack Lew visited Puerto Rico on Wednedsday, where he held a press conference urging U.S. Congress to take action to help alleviate the island's massive debt and humanitarian crisis.
"Only Congress can enact the legislative measures necessary for Puerto Rico to resolve this problem," he said at a news conference in San Juan. "The people of Puerto Rico are sacrificing, but unless that sacrifice is shared by creditors in an orderly restructuring, there is no path out of insolvency and back to growth."
Meanwhile, bondholders have repeatedly lobbied against granting bankruptcy rights, claiming that debt restructuring would discourage reform and, importantly, decrease payments to bondholders.
About one in five U.S. bond mutual funds own Puerto Rican debt, according to Morningstar, and the territory's bond default in August was the largest in U.S. history. Much of its debt has been bought by hedge funds.
WATCH: Puerto Rico Avoids 11th Hour Debt Payment Default