The already complicated quest for a resolution to Puerto Rico’s debt crisis became more complex with the sudden death on Saturday of Supreme Court Justice Antonin Scalia, whose passing could influence a pending Supreme Court case on the island’s debt, MorningConsult.com reported today. On March 22, the court will hear oral arguments in Puerto Rico v. Franklin California Tax-Free Trust, which will determine if Puerto Rico’s legal system can restructure debts and arbitrate debt disputes through its own bankruptcy process. Currently, it doesn’t have the authority under chapter 9 of the Bankruptcy Code to do so. The case has been merged with a companion case, Acosta-Febo v. Franklin California Tax-Free Trust. The case deals with about $20 billion of Puerto Rico’s $72 billion in debt, all of which was incurred by its three major public utilities. In Puerto Rico’s petition asking the high court to take up the case, the petitioners said there is “no basis to conclude that the exclusion of Puerto Rico from chapter 9 represents a limitation on the Commonwealth’s power to create its own mechanism for restructuring the debts of its public utilities.” Read more.
In related news, Puerto Rico's government said that it had "substantial doubt" about its ability to operate long-term, and cited a threat to public services if its Government Development Bank misses debt payments, in a draft of long-delayed fiscal year 2014 financial data released yesterday, Reuters reported today. The 366-page draft, which has not yet been audited, follows criticism from some U.S. lawmakers and financial creditors that Puerto Rico has not been transparent with its finances. The U.S. territory is mired in economic crisis, facing a 45 percent poverty rate and a dwindling tax base as locals flock to the mainland United States. It is hoping for help from Congress in resolving its $70 billion debt load. "The commonwealth's management believes that there is substantial doubt as to the ability of the primary government" and other governmental entities "to continue as a going concern," the report said. Puerto Rico said it expects to miss at least some of its July 1 general obligation (GO) debt payment — about $800 million, according to a debt schedule obtained by Reuters — even with the benefit of so-called "clawbacks" wherein revenues earmarked for other debt are redirected to pay GO debt. The report said Puerto Rico faced a $49.2 billion deficit as of June 30, 2014, $2.5 billion higher than in 2013. Read more.
For more news and analysis of Puerto Rico's debt crisis, be sure to visit ABI's "Puerto Rico in Distress" webpage.
