The Puerto Rico Public Corporation Debt Enforcement and Recovery Act

6/30 UPDATE: here's the  amended complaint.

The fast-moving legislation's title does not include the word bankruptcy. Materials distributed by the Puerto Rico government explain, though, that the bill is meant to provide chapter 9-like relief to Puerto Rico public corporations through one of two paths - one more prepack-like than the other. Calling the effort "dazzling," Cate Long notes, "[s]eldom have financial markets seen such an elegantly choreographed approach to haircutting sovereign debt."

However elegant, investors say the bill violates multiple provisions of the U.S. Constitution. Quiz yourself, or directly check out the action just filed in the U.S. District Court for the District of Puerto Rico seeking a declaratory judgment.  H/T Cate Long.

Puerto Rico flag courtesy of Shutterstock

Comments

[mt]

The one clear principle that emerges from the Supreme Court cases on state bankruptcy laws is that, as long as a federal bankruptcy law exists, it is the exclusive method to discharge debts. States can tinker with priorities but they can't discharge a local debtor from its debts.