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TMCNet:  KBRA Releases Commentary: Has Special Revenue Bond Protection Been Turned on its Head?

[February 12, 2018]

KBRA Releases Commentary: Has Special Revenue Bond Protection Been Turned on its Head?

Kroll Bond Rating Agency (KBRA) has released a commentary on a court ruling by the bankruptcy judge presiding over Puerto Rico's Title III proceeding. Last week, Judge Swain ruled, among other things, that Puerto Rico did not have to pay its special revenue bonds issued by Puerto Rico's Highways and Transportation Authority (PRHTA), thereby making payment of special revenues subject to the automatic stay provisions under the Bankruptcy Code.

While the court did not address longer-term issues relating to the ultimate security and recovery provided by special revenue bond status (such as payment of adequate protection to bondholders or the ability to enforce bond payment in another judicial forum), it did open the door to defaults in payment of special revenue bonds that the market has long believed were not possible. It is KBRA's understanding that this decision will very likely be appealed, and the appeal will be reviewed by the 1st Circuit Court of Appeals in Boston. In this commentary, KBRA discusses the decision as well as the potential implications for ratings in the municipal market.

To view the report, please click here.


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About KBRA and KBRA Europe

KBRA is a full service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. In addition, KBRA is recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and a certified Credit Rating Agency (CRA) by the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.

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