Puerto Rico asked a judge to throw out a lawsuit by Franklin Templeton Investments and Oppenheimer Funds Inc. funds seeking to overturn a law allowing some public corporations to their restructure debt.
The commonwealth said enacting the law was a “valid exercise” of its power, according to a court filing today in San Juan federal court. The funds hold more than $1.7 billion of the commonwealth’s electric power authority bonds.
The law “assures the restructuring of debt by public corporations where no federal law applies and ensures these public corporations have the ability to continue to provide vital public services like delivering dependable electricity and clean water,” the commonwealth said in its filing.
The debt-burdened Puerto Rico Electric Power Authority may miss a January interest payment to investors, according to Municipal Market Advisors, potentially triggering a restructuring larger than any by a state or local government in the U.S.
The investment funds filed their lawsuit on June 28, the same day Puerto Rico Governor Alejandro Garcia Padilla signed the restructuring law.
The law, passed under threat of a “fiscal emergency,” would allow public utilities such as the power authority to negotiate with bondholders to reduce their debt loads, potentially forcing investors to accept unfavorable terms, according to the complaint. Prepa, struggling with $10 billion of debt, may “file for relief under the act imminently,” investors alleged.
Puerto Rico’s public corporations aren’t eligible to seek restructuring under Chapter 9 or Chapter 11 of the federal bankruptcy code, the commonwealth said. No public corporation has sought relief under Puerto Rico’s law, it said.
The funds’ case is Franklin California Tax-Free Trust v. Commonwealth of Puerto Rico, 14-cv-01518, U.S. District Court, District of Puerto Rico (San Juan).