Insolvency Law at Puerto Rico (US)
Puerto Rico's insolvency framework is governed by the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA), enacted by the U.S. Congress in 2016. PROMESA provides a legal mechanism for Puerto Rico and its instrumentalities to restructure their debts, addressing the island's fiscal crisis. (Debt - Financial Oversight and Management Board for Puerto Rico, The Impact of the New Restructuring Law on Puerto Rico Creditors)
🏛️ Legal Framework
PROMESA: A U.S. federal law that establishes a process for restructuring Puerto Rico's debts and overseeing its fiscal management.
Financial Oversight and Management Board: An entity created under PROMESA to oversee Puerto Rico's fiscal policies and ensure compliance with approved budgets and fiscal plans.
⚖️ Insolvency Procedures
1. Title III – Debt Adjustment
Title III of PROMESA provides a bankruptcy-like process for Puerto Rico and its instrumentalities to adjust their debts. It is modeled after Chapter 9 of the U.S. Bankruptcy Code but includes unique provisions tailored to Puerto Rico's status. (The Impact of the New Restructuring Law on Puerto Rico Creditors)
Initiation: Only the Financial Oversight and Management Board can file a Title III petition. (Puerto Rico Financial Oversight Law Enacted)
Court Oversight: Proceedings are conducted in the U.S. District Court for the District of Puerto Rico.
Automatic Stay: An immediate halt to most creditor actions upon filing, providing the debtor with breathing space to negotiate.
Plan of Adjustment: A court-approved plan detailing how debts will be restructured, which may include debt forgiveness, extended repayment terms, or other modifications.
Cramdown Provisions: Allows the court to approve a plan even if not all creditor classes consent, provided certain conditions are met.
💼 Recent Developments
Debt Reduction: As of 2023, approximately 80% of Puerto Rico's outstanding debt has been restructured, reducing total liabilities from over $70 billion to a sustainable $37 billion, saving the island more than $50 billion in debt service payments. (Debt - Financial Oversight and Management Board for Puerto Rico)
PREPA Case: The Puerto Rico Electric Power Authority (PREPA) is undergoing its own restructuring process under Title III. A recent federal appeals court ruling granted bondholders rights over future electricity revenues, potentially complicating the restructuring plan. (Why Puerto Rico Will Likely Rely On PROMESA Title III | Microjuris al Día, Puerto Rico Bondholders Win Back Rights to Electricity Revenues)
📌 Conclusion
PROMESA's Title III offers a structured approach for Puerto Rico to address its fiscal challenges through a court-supervised debt restructuring process. While significant progress has been made, ongoing cases like PREPA highlight the complexities involved in restructuring public sector debts. (Debt - Financial Oversight and Management Board for Puerto Rico)
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