Today, the Supreme Court agreed to decide whether Puerto Rico, which is in the midst of a financial crisis, may allow public utilities there to restructure $20 billion in debt. The New York Times reports:
Puerto Rico’s lawyers had urged the court to take immediate action in light of the overall magnitude of the commonwealth’s debts, around $72 billion, which it says it cannot pay. “Anyone who has even glanced at the headlines in recent months knows that the commonwealth is in the midst of a financial meltdown that threatens the island’s future,” they wrote in their petition seeking review ofan appeals court decision that struck down a 2014 Puerto Rico law allowing the restructurings. “Because that decision leaves Puerto Rico’s public utilities, and the 3.5 million American citizens who depend on them, at the mercy of their creditors,” the commonwealth’s lawyers wrote, “this court’s review is warranted — and soon.”
The United States Court of Appeals for the First Circuit, in Boston, said the 2014 law, the Recovery Act, was at odds with the federal Bankruptcy Code.
Puerto Rican officials countered that the Recovery Act addressed a gap in how its debts are treated. Under the Bankruptcy Code, states may authorize their public utilities to restructure their debts. But that law excludes Puerto Rico’s public utilities. The Recovery Act, Puerto Rican officials said, merely filled the gap in the overall legal structure.
Creditors of the utilities sued, arguing that the Bankruptcy Code displaced, or pre-empted, the local law. So far, the courts have agreed.
Puerto Rico is also seeking help in Congress. But that is not a reason for the Supreme Court to deny review, its lawyers told the justices. “Precisely because the crisis facing Puerto Rico’s public utilities is so acute,” they said, “it would be irresponsible for the commonwealth to respond to the vacuum left by the lower courts’ invalidation of the Recovery Act by simply kicking back and crossing its fingers pending this court’s consideration of this petition. Instead, the commonwealth and its public utilities have explored every potential avenue to fill that gap, including federal legislation and consensual deals with creditors.”
The cases, Puerto Rico v. Franklin California Tax-Free Trust, No. 15-233, and Acosta-Febo v. Franklin California Tax-Free Trust, No. 15-255, will probably be argued in the spring and decided by the end of June.