U.S. top court wrestles with Puerto Rico restructuring case

Reuters News
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Posted: Mar 22, 2016 12:27 PM

By Lawrence Hurley and Nick Brown

WASHINGTON (Reuters) - U.S. Supreme Court justices on Tuesday appeared conflicted as they considered whether to revive a Puerto Rico law that would allow restructuring of the debt-burdened U.S. Caribbean territory's public agencies.

It was unclear how the court will rule, though some of the court's liberal justices expressed sympathy for Puerto Rico's legal arguments. The legal question is whether the island's 2014 law known as the Recovery Act conflicts with U.S. federal bankruptcy law.

As Puerto Rico's leaders, creditors and U.S. lawmakers seek a debt solution in the U.S. Congress, the question before the Supreme Court is whether the island should be allowed to restructure certain debts under a court-supervised regime similar to Chapter 9 bankruptcy laws used by U.S. cities such as Detroit and Stockton, California.

Puerto Rico faces what its governor has called an unpayable $70 billion debt.

Puerto Rico, which as a U.S. commonwealth is excluded from Chapter 9, passed the Recovery Act, a local restructuring law that lets it put public entities, such as power authority PREPA, into bankruptcy. 

Two U.S. court decisions deemed the Recovery Act invalid after PREPA creditors sued, with the Supreme Court agreeing in December to hear an appeal.

Creditors say the act contradicts federal bankruptcy law, which prohibits states from making their own debt restructuring laws. Puerto Rico argues that if it is exempt from Chapter 9, it must also be exempt from the limitation on states passing their own laws.

(Reporting by Lawrence Hurley and Nick Brown; Editing by Will Dunham)