Matthew Whitaker, former Acting US Attorney General, disagrees with a Puerto Rico bankruptcy judge’s ruling regarding the Puerto Rico Electric Power Authority’s bankruptcy and the subsequent handling of the utility’s creditors. He wrote in his Fox Business op-ed that

[US District Judge Laura Taylor] Swain…concluded that special revenue bondholders do not hold a secured claim on current and future net revenues. As The Wall Street Journal explained in March, “A federal judge curbed Puerto Rico bondholders’ rights to the electric revenue generated by its public power utility.”
Furthermore, the ruling stated that the original legal obligation of the borrowers is not the face value of the debt, but rather what the borrower (in this case “PREPA”) can feasibly repay.

This is wrong. Whitaker is right. The borrower committed to repay what it borrowed, not what it might feel like repaying be able to repay in some speculative future.

This judicial error, though, has much broader implications than just the damage done PREPA’s creditors. Her ruling sets the ugly precedent that no borrower is liable for what he borrows, only for what he might be able to repay. That drastically altered risk terrain can only mean that lenders will be more reluctant to lend, particularly to lower income (and so with higher debt risk) folks and businesses, and that those lenders that do lend will do so only at markedly higher interest to account for the risk the amount they lend will not be recoverable in any guise, especially in the public—municipal—arena.