On Wednesday, June 12, the First Circuit ruled that bondholders of the Puerto Rico Electric Power Authority (PREPA) have a claim for over $8.5 billion and valid liens on the revenue of utility, reversing the lower court on both issues. A three-judge panel consisting of William J. Kayatta Jr., Jeffrey R. Howard and Julie Rikelman concluded that the language in a trust agreement governing the revenue bonds created a security interest in the net revenues of PREPA. The decision also found that the bondholders have a bankruptcy claim for the full amount of the bonds issued.
Bondholders of PREPA issued the following statement in regards to this decision:
“We are pleased with the First Circuit Court of Appeals’ decision reinstating the bondholders’ claim for the principal amount of the bonds plus matured interest (approximately $8.5 billion) and finding that the claim is secured by all of PREPA’s past, present and future Net Revenues. The decision restores the municipal market’s understanding of the proper functioning of special revenue bonds. The PREPA Bondholders remain hopeful that the Puerto Rico government and the Oversight Board will engage in a constructive fashion to reach a fair resolution of the PREPA restructuring that allows the Commonwealth to move past its bankruptcy proceedings and focus its efforts on providing services to the island’s citizens. A consensual emergence from bankruptcy will best position the people of Puerto Rico for economic success and allow the island to achieve its goal of re-accessing the capital markets as an investment grade issuer, and the PREPA Bondholders remain ready to engage.”
PREPA Bondholders include GoldenTree Asset Management, Assured Guaranty Municipal and Assured Guaranty and G. Eric Brunstad Jr., Stephen D. Zide and David A. Herman from Dechert.
