Puerto Rico’s bankrupt power utility and its creditors squared off in court Monday on whether bondholders have a legal right to the electricity provider’s future revenue, Bloomberg News reported. The debate before the US Court of Appeals for the First Circuit centers around whether the island’s main energy supplier, Electric Power Authority or Prepa, must repay its creditors more than just the roughly $19 million sitting in reserve accounts that a bankruptcy court last year ruled was the bondholders’ only secured lien. At stake is the $9 billion Prepa owes to investors and fuel-line lenders while island residents endure some of the highest electricity rates in the U.S. amid frequent outages. The case is poised to affect revenue-backed municipal debt beyond Puerto Rico as water and sewer authorities, hospitals, toll roads, higher educational institutions and transit agencies all sell bonds with the pledge to repay investors from future revenue collections. The bondholders say they have a claim to Prepa’s current and future revenues based on Prepa’s trust agreement and under the Uniform Commercial Code — a set of state laws that govern U.S. commercial transactions. Puerto Rico’s financial oversight board, which is managing Prepa’s bankruptcy, disagrees, arguing the trust agreement only gave investors a secured lien on the reserve fund and nothing more.
