National Public Finance Guarantee Corp. and Assured Guaranty Municipal Corp. sued Detroit, claiming a proposal by the city’s emergency manager to cut payments to general obligation bondholders is illegal.

The two companies insure about $233.2 million in bond debt issued between 1999 and 2006 for public works projects. When the city defaulted on a $9.4 million interest payment for the bonds, the two companies were forced to pay bondholders, according to the complaint filed in U.S. Bankruptcy Court in Detroit.

“The City of Detroit is now unlawfully diverting voter approved ad valorem taxes that the city must levy and collect for the sole purpose of paying principal and interest on the unlimited tax bonds,” the bond insurer said in court papers.

Before putting the city into bankruptcy on July 18, Orr proposed canceling about $2 billion in bond debt and reducing $3.5 billion in unfunded pension liabilities. Those debts would be replaced with about $2 billion in new notes, forcing bondholders and the pension systems to accept less than what they are owed.

Because they must pay investors if a city doesn’t, bond insurers have been involved in all of the large municipal bankruptcies filed since Vallejo, California, started the current wave in 2008.