Justices take up Puerto Rico debt restructuring case

WASHINGTON (AP) — The Supreme Court is taking up an appeal from Puerto Rico officials seeking to restructure the debt of the commonwealth’s financially struggling public utilities. The justices recently said that they will review a lower court ruling that said Puerto Rico could not pass a law giving local municipalities the power to declare bankruptcy.

Puerto Rico  lawmakers passed the law last year to help the cash-strapped utilities meet their obligations to bondholders and creditors. Puerto Rico is in a nine-year economic slump and struggling with $72 billion in public debt.

But a federal district court ruled that the measure is not permitted by federal bankruptcy law. The 1st U.S. Circuit Court of Appeals agreed.

Puerto Rico argues that nothing in federal law prevents it from enacting its own laws to restructure debt.

The case probably will be argued in March before an eight-justice court. Justice Samuel Alito is not taking part. The court gave no reason for Alito’s absence, but the justice owns $15,000 to $50,000 worth of shares in a tax-free fund that invests in Puerto Rican bonds and is involved in the case, according to his personal financial report for 2014.

Cesar Miranda, Puerto Rico’s justice secretary, said the court’s decision was a historic moment.

“It seemed impossible, but here we are,” he said in a statement. “We have experienced so much marginalization and so much injustice that it had to draw the attention of any jurist with a conscience.”

Puerto Rico Gov. Alejandro Garcia Padilla announced in June that the commonwealth’s public debt was “not payable” and said its agencies would seek concessions from creditors.

The island narrowly avoided a multimillion-dollar default on Dec. 1 by announcing a last-minute bond payment of $355 million.

But Padilla warned the U.S. Senate Judiciary Committee the same day that the island is running out of cash, and it was not clear whether other payments would be made.

Padilla told lawmakers he was issuing a “distress call” to Congress to help his government. He wants Congress to create a legal framework that would give the territory the authority to restructure its liabilities.

The island’s Government Development Bank has warned that the government will likely have to cut back on public services or default on debts before the end of the year because it is running out of cash.

Earlier this year, Puerto Rico legislators approved a bill to restore more power to a fiscal control board in an effort to appease bondholders and help pull the island out of what is the worst financial crisis in its history.