Puerto Rican officials from across the political spectrum joined forces yesterday to urge the U.S. Congress to provide the government of Puerto Rico with the same authorization enjoyed by states to restructure debt under Chapter 9 of the federal bankruptcy code.
In a Congressional hearing before a House judiciary subcommittee, Members of Congress considered a proposal to amend federal bankruptcy law governing municipalities to include the U.S. territory, which faces a debt burden close to $73 billion. The hearing comes on the heels of a a federal court ruling that a local debt restructuring law was unconstitutional.
Congressman Darrell Issa (R-CA) brought up the issue of Puerto Rico’s status at the hearing when he suggested that Puerto Ricans have two possible options to solve debt restructuring problems “by their own vote today” – through either statehood or independence. Issa noted that as an independent country, Puerto Rico would no longer be covered under U.S. law, and as a State, Puerto Rico would be automatically included in Chapter 9.
Legislation pending before the Judiciary Committee would essentially make Puerto Rico a State for purposes of Chapter 9 of the bankruptcy code by redefining “State” in the statute to include the U.S. territory of Puerto Rico.
Puerto Rican Resident Commissioner Pedro Pierluisi, the author of the proposed legislation, noted that Puerto Rican “public corporations, like our electric power authority and our highway authority, are subject to U.S. labor, environmental and other laws – as they should be because Puerto Rico is an integral part of this nation.” He further argued, “[h]ow is it fair…that these same entities should not have access to the legal mechanism that Congress has put in place to authorize such entities, if they become insolvent, to adjust their debts in an orderly fashion?”
Judiciary Committee Chairman Bob Goodlatte (R-VA) recognized that Chapter 9 of the Bankruptcy code could provide “predictability, transparency, and stability to a Puerto Rican municipal bankruptcy. It also could serve as a framework within which parties could come to the negotiating table and reach a consensual restructuring.” He added, however, that bondholders purchased Puerto Rican bonds when Chapter 9 was not an option and cautioned against applying the law retroactively.
Hearing witness John Pottow, a law professor at the University of Michigan, addressed the concern over retroactivity by noting that Congress has authority under the constitution’s Bankruptcy Clause to adjust debts and has used this authority in the past by enacting laws that apply to pre-existing debts.
Resident Commissioner Pierluisi dedicated his opening testimony to listing the broad support for the proposal, including endorsements from academics, individual practitioners, the National Bankruptcy Conference, local trade associations in Puerto Rico and stakeholders within the investment community. Pierluisi further noted that the opposition to the bill is centralized in a small number of investment firms.
Watch the hearing on video. (Issa comments on status begin at 1:19)
Witnesses at the hearing included the following individuals:
Mr. John A. E. Pottow Esq.Professor of LawUniversity of Michigan Law SchoolJohn Pottow Testimony.pdf (3.0 MBs)
Ms. Melba Acosta Esq.PresidentGovernment Development Bank for Puerto RicoMelba Acosta-Febo Testimony.PDF (157.3 KBs)
Mr. Robert DonahueManaging DirectorMunicipal Market AnalyticsRobert Donahue Testimony.pdf (506.4 KBs)
Mr. Thomas Moers Mayer Esq.Partner & Co-Chair, Corporate Restructuring and Bankruptcy GroupKramer Levin Naftalis & Frankel LLPThomas Mayer Testimony.pdf (1.5 MBs)