MIAMI, FL – May 3, 2017 – Puerto Rico Files for Bankruptcy-ish Protection
The oversight board appointed to lead the United States territory of Puerto Rico back to fiscal sustainability declared in a court filing today that it is “unable to provide its citizens effective services,” and has sought protection under Title III of the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA). The case filed by Puerto Rico is not technically considered a bankruptcy filing under Chapter 9 of title 11 of the United States Code, which governs municipal cases, but it has similarities. After the filing, U.S. Supreme Court Chief Justice John Roberts will appoint a judge, and likely a United States District Court judge, not a Bankruptcy Judge, to oversee the case. One aspect of the Bankruptcy Code that is incorporated into Title III of PROMESA is the so-called “cramdown” provisions found in Chapter 11. In other words, if one class of creditors consents to treatment proposed by Puerto Rico under its restructuring plan, but other classes of claims do not, then Puerto Rico can ask the court to literally force the non-consenting classes of creditors to accept Puerto Rico’s proposed treatment of their claims under its plan. This could prove useful as over a dozen creditors holding in excess of $50 billion out of Puerto Rico’s estimated $74 billion in debt attempted to agree on a consensual restructuring over the course of more than two years without result.
Title III of PROMESA will give the presiding judge significant power and discretion over how the restructuring unfolds. This court will be able to address litigation claims pending against Puerto Rico in various courts, and can take full advantage of its equitable powers under PROMESA to fashion a broad confirmation order that will provide a clear and reliable discharge of Puerto Rico’s obligations upon confirmation of the Commonwealth’s case, providing Puerto Rico with a true clean slate upon emergence. But Puerto Rico is a long way from here to there. This will be an extraordinarily complex matter because included in Puerto Rico’s filing are various governmental entities, each of which has its own investors and creditors looking for repayment, and it is not abundantly clear how creditors of various entities will stack up against each other.
Ehrenstein Charbonneau Calderin is a law firm based in Miami, Florida. The firm and its attorneys serve their clients in the areas of business restructuring, dispute resolution, and real estate.