The U.S. Supreme Court will consider reinstating a Puerto Rico law that would let its debt-ridden public utilities restructure their obligations, agreeing to hear an appeal by the commonwealth as it tries to navigate out of its fiscal crisis, Bloomberg News reported on Friday. The disputed law would affect $22 billion of Puerto Rico’s $70 billion in debt. That includes $8.2 billion owed by the Puerto Rico Electric Power Authority, known as PREPA, which is negotiating with its creditors and would gain new leverage from a ruling upholding the law. The case centers on the power of the Puerto Rican government to fill what it says is a gap in federal bankruptcy law, which bars filings by the commonwealth’s utilities. The Supreme Court will decide by June. Read more.
Resident Commissioner Pedro Pierluisi issued the following statement on Friday regarding the decision by the U.S. Supreme Court to grant certiorari to examine the constitutionality of the Puerto Rico Corporations Debt Enforcement and Recovery Act, known as the Recovery Act:
“This is an extraordinarily interesting development that provides Congress with yet another compelling reason to swiftly enact legislation to authorize Puerto Rico to restructure a meaningful portion of its debt under the supervision of a federal judge. My strong preference is that the legal regime authorizing Puerto Rico to restructure debt be enacted at the federal level. The status quo — in which Puerto Rico has no legal framework in which to restructure debt in a fair, orderly and equitable manner — benefits neither the 3.5 million American citizens that reside in Puerto Rico nor the government’s creditors.” Click here to read Pierluisi’s full remarks.
In related news, Puerto Rico may have dodged a bullet when it avoided default last week, but its decision to commandeer revenue that was supposed to meet future debt payments will invite creditor pushback and possibly lawsuits, Reuters reported yesterday. Creditors have long criticized Puerto Rico’s spending habits, and may have the ammunition to bring those complaints to court now that the Caribbean island plans to divert funds to cover constitutionally-guaranteed debt and essential government services. The U.S. territory, which owes creditors $72 billion, last Tuesday avoided defaulting on a $355 million payment. But it owes another such payment on Jan. 1, which can only be made if revenue that was earmarked to repay and service other debt owed by various government agencies is repurposed, Governor Alejandro Garcia Padilla said. The island said that it also needs to use that revenue to keep some key services operating, though it has not specified which ones. Many creditors said these clawbacks are premature, and question whether they will be used on truly essential services. Read more.
Join experts in San Juan to discuss Puerto Rico’s economic distress and other important cross-border insolvency topics at ABI’s Caribbean Insolvency Symposium on Feb. 4-6, 2016. Click here to register.
For more news and analysis of Puerto Rico’s debt crisis, be sure to visit ABI’s “Puerto Rico in Distress” webpage.
