Holders of bonds issued by the Puerto Rican power utility PREPA, also known as AEE, the firm that controls energy production on the island, filed suit against the Puerto Rican government contending that the law regulating the process whereby public corporations may file for bankruptcy is unconstitutional.
"By promulgating this law," Puerto Rico, which is a U.S. commonwealth, "and the governor are intending to create legal means that violate the constitution and harm the plaintiffs and other creditors of public corporations," according to the lawsuit filed by entities that control $1.7 billion of PREPA's $8.8 billion debt.
The suit, brought in U.S. federal court in San Juan, says that the law signed by Gov. Alejandro Garcia Padilla is unconstitutional.
The law establishes a legal framework whereby public firms in financial difficulties may restructure their debts without having to resort to the Government Development Bank for Puerto Rico, or BGF.
The plaintiffs, 23 U.S. fund managers mainly belonging to Franklin Funds and Oppenheimer, say that the law, approved during the "fiscal emergency" decreed on the island, violates the 5th Amendment of the U.S. Constitution, which stipulates that private property may not be used for public ends without compensation.
They are also insisting that the U.S. Commonwealth of Puerto Rico may not approve a law that prevents potential plaintiffs from turning to the federal courts and say that the law violates federal bankruptcy legislation and regulates bankruptcy in a U.S. territory, something that only Congress may do.
The initial response to the lawsuit by credit rating agencies this past week was to reduce to "junk" status their evaluation of PREPA's bonds, along with those of the island's water and sewage authority and the highway and transportation authority. EFE
Holders of Puerto Rican electric company bonds sue island's gov't
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