A chapter 9 solution to Puerto Rico’s economic and financial woes, as the House Judiciary Committee is contemplating via H.R. 870, is ill-conceived on several grounds, according to a commentary in today’s Roll Call. First and foremost, the bill’s passage would override with retroactive effect the bond indentures of the millions of investors throughout the U.S. who have bought Puerto Rico’s bonds, mostly through mutual funds. H.R. 870 would give carte blanche to the Commonwealth to break its solemn pledge that our bonds would be paid in accordance with the laws and contracts under which they were issued, according to the commentary. Second, H.R. 870 would authorize only the island’s public utilities and agencies to restructure their debts under the supervision of a federal bankruptcy judge. Depending on how broadly it would be implemented, a chapter 9 process would thus apply merely to between one-fifth and one-third of the Commonwealth’s more than $70 billion of debts to bondholders and banks, according to the commentary. The bulk of public indebtedness would have to continue to be serviced in full and on a timely basis.
