A recent decision made by U.S. District Judge Laura Taylor Swain in the bankruptcy proceedings of the Puerto Rico Electric Power Authority (PREPA) has profound implications, particularly for the fairness and efficiency of capital markets, as well as the access of state and local governments to municipal bonds, according to a Fox Business commentary by Matthew Whitaker, co-chair of the Center for Law and Justice at the America First Policy Institute and the former acting attorney general under the Trump administration. It is imperative that we comprehend the potential consequences of this ruling, as it could lead to escalated costs and hindered infrastructure development and also burden taxpayers with higher financial obligations, according to Whitaker. In the bankruptcy proceedings of the power utility, Judge Swain sided with borrowers and concluded that special revenue bondholders do not hold a secured claim on current and future net revenues. Furthermore, the ruling stated that the original legal obligation of the borrowers is not the face value of the debt, but rather what the borrower (in this case "PREPA") can feasibly repay. This ruling raises concerns regarding its broader implications for the municipal bond market. Read more.
*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.
