Puerto Rico; Act III

Abstract

The Commonwealth of Puerto Rico and certain of its affiliated entities have filed “bankruptcy” petitions under Title III of the Puerto Rico Oversight, Management, and Economic Stability Act ("PROMESA"). This short paper provides a brief update on the current status of the restructuring process. As is well known, Puerto Rico’s economy was already deeply distressed, and then came hurricanes, earthquakes, and COVID-19. Given the poor state of the local economy, the island arguably needs extensive debt relief. Before COVID-19, the oversight board had proposed modest debt relief, and even that was deemed unacceptable by bondholders, who argued for cuts to local pensions equal to those being faced by bondholders. As a result, the restructuring process is apt to continue to be quite lengthy and contentious. Puerto Rico’s indeterminate legal status – as neither U.S. state nor independent nation – further complicates matters.

Keywords: PROMESA; municipal debt; chapter 9; Puerto Rico; Article IV; Territories Clause; Bankruptcy Clause; sovereign debt