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The debt-restructuring plan put forward by Puerto Rico’s bankrupt power authority includes a type of financing common among tobacco-settlement debt that may serve as a blueprint for other utilities seeking to raise money to meet capital needs, Bloomberg News reported. Known as “turbo bonds,” the debt — backed by a dedicated charge and a fee on customers’ monthly bills — has the potential to be repaid in full before maturity because any excess revenue must be used to pay back investors early. Many bonds repaid from tobacco settlement receipts use this early redemption structure as a way to ensure repayment at a time when the broader trend is for cigarette sales to drop over time. Similarly, demand for energy supplied by the Puerto Rico Electric Power Authority is on course to slump as the island’s population declines and more residents and businesses turn to solar power. The securities may serve as a useful financing tool for electric utilities across the U.S. that are experiencing a decline in usage as customers install solar panels to their homes and rely less on the power grid, David Brownstein, the former head of Citigroup Inc’s soon-to-close public finance department and now a principal at BGC Partners Advisory, said while testifying in court on Friday during a confirmation hearing on the utility’s debt-cutting proposal.

The judge overseeing the bankruptcy of Puerto Rico’s Electric Power Authority is keeping a planned March 4 confirmation hearing, denying a request from some creditors to postpone a discussion of the utility’s debt-cutting plan on that date, Bloomberg News reported. Bond insurance companies and certain investors of the electric utility’s nearly $9 billion of debt sought to delay the March confirmation hearings until the US Court of Appeals for the First Circuit determined whether bondholders have a secured claim to the agency’s future revenue collections. U.S. District Court Judge Laura Taylor Swain Monday rejected that request. Prepa, as the utility is known, has been in bankruptcy since July 2017 and Swain has expressed eagerness to resolve a case that’s already been held up by natural disasters, the pandemic and the commonwealth’s own bankruptcy process. “What movants propose will likely leave the debtor, the commonwealth, and the people of Puerto Rico in a further prolonged state of uncertainty and impede progress toward renewal of the critical service infrastructure necessary to Puerto Rico’s return to the capital markets,” Swain wrote in her decision. Assured Guaranty Corp., Syncora Guarantee, GoldenTree Asset Management and an ad hoc group of bondholders were seeking to delay the March 4 hearing. Prepa’s debt plan would slash $10 billion of claims by 75%. It has the support of BlackRock Financial Management and Nuveen Asset Management.

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.

More than a dozen U.S. state attorneys general are backing an appeal by creditors of the Puerto Rico Electric Power Authority seeking to challenge a bankruptcy ruling that sharply limits their revenue claims, Bloomberg News reported. U.S. District Court Judge Laura Taylor Swain decided in March the utility’s bondholders only had a secured lien on about $16 million already deposited in reserve accounts. She then capped at $2.38 billion their right to the utility’s net revenue. Prepa, as the agency is known, owes $9 billion to bondholders and fuel-line lenders. Its creditors, including GoldenTree Asset Management and Syncora Guarantee, earlier this month appealed Swain’s ruling. Led by Jason Miyares, Virginia’s top prosecutor, the 14 attorneys general, all Republicans, are supporting that legal pushback in a brief filed to the court late Monday. Tollroads, utilities, hospitals and transit agencies throughout the U.S. sell debt to finance infrastructure development with the promise to repay from future revenue collections. Limiting investors’ ability to recoup future receipts can negatively impact the municipal-bond market, according to the filing from the attorney generals. “Doing so would harm the market and its participants — including the states, municipalities and investors — and threaten the continued viability of the primary revenue stream for vast swaths of municipal public works projects, such as water systems, health care facilities, power plants, waste disposal facilities, or low and moderate income housing programs,” according to the brief.

A proposed amended contract between Puerto Rico’s government and the operator of a coal-fired power plant accused of contaminating low-income communities on the island drew scrutiny Monday during a heated public hearing, the Associated Press reported. Environmentalists and lawyers demanded to see the redacted details of the proposed amendments sought by AES Puerto Rico LP as they accused officials during the hearing held by Puerto Rico’s Energy Bureau of withholding key information that would affect those living in the U.S. territory. “It can say anything under those blackouts,” said Víctor Alvarado, environmental affairs secretary for the Puerto Rican Independence Party. “This is like a blank check,” added Myrna Conty Hernández, an environmentalist and community leader. If approved, the amended contract would go into effect Dec. 1. It is expected to lead to an increase in power bills that are already among the highest of any U.S. jurisdiction and award more money to a company that has come under the scrutiny of the U.S. Environmental Protection Agency. The EPA is testing air and water in the region.

Puerto Rico’s bankruptcy created some debt securities that don’t pay interest, but still managed to deliver an almost $400 million windfall to investors this month, Bloomberg News reported. Called contingent-value instruments, or CVIs, they’re what investors received in March 2022 as part of a debt restructuring deal that cut $22 billion of the commonwealth’s outstanding bonds down to $7.4 billion. The CVIs are taxable securities that resemble zero-coupon bonds — except they do offer investors a chance to collect interest-like payments before the debt expires. This is because they include a provision that calls for holders to receive a payout in November if sales-tax collections for the prior fiscal year surpass projections. So far they have: CVI holders received $362 million in 2022 and $388.7 million on Nov. 1. Some bondholders view the CVIs as a long-term investment. But others see them as trading vehicles, looking to take advantage of price movements because their longer duration makes them more sensitive to interest rates and susceptible to swings, said Daniel Solender, head of municipal debt at Lord Abbett & Co, which holds some of Puerto Rico’s CVIs.

A group of U.S. lawmakers is asking tax authorities to accelerate an investigation into rich Americans seeking lucrative tax breaks in Puerto Rico, Bloomberg News reported. Twelve Democratic members of the House of Representatives asked the Internal Revenue Service on Friday to expedite a congressional request for information about efforts to root out people allegedly abusing Puerto Rico’s tax benefits. In July, the IRS said it was investigating about 100 wealthy individuals and might pursue criminal charges after announcing an audit of the benefits in 2021. “Unfortunately, beyond these announcements, the IRS has not released any information to the public regarding its auditing efforts,” the lawmakers, led by New York Democrat Nydia Velazquez, wrote to IRS Commissioner Daniel Werfel. Puerto Rico, a U.S. territory of 3.2 million people, began offering sweeping tax breaks in 2012 with the hopes of attracting wealthy Americans who might help boost the economy. Some 5,010 people have moved to the island to enroll in the program, which eliminates all taxes on dividends, interest and capital gains and allows them to pay just 4% on income tax. The incentive isn’t accessible to local residents, who face income tax rates as high as 33%. Despite attempts to extend those tax breaks to eligible locals, Puerto Rico lawmakers stripped out those provisions this week, and the federally appointed oversight board blocked further tax cuts.