Supreme Court voids Puerto Rico's debt restructuring law, keeping PREPA deal in place
- Today, the U.S. Supreme Court ruled 5-2 to reject Puerto Rico's bid to revive its Recovery Act, the debt restructing law that would have impacted over $20 million in utility debt, according to Bloomberg.
- The U.S. territory's electric utility, the Puerto Rico Electric Power Authority (PREPA), has been running out of cash and is mired in debt. The Commonweath's Governor signed the PREPA Revitalization Act in February 2016, a separate piece of legislation that has helped the electric utility restructure debt owed to creditors, overhaul its governance and keep the lights on in the meantime.
- A decision to uphold the Recovery Act could have stopped the agreed-upon restructuring by allowing Puerto Rico to put PREPA into bankruptcy, "where it could impose deeper cuts and bind holdout creditors," according to Reuters.
Puerto Rico has been plagued by severe financial problems, with the latest blow coming from today's Supreme Court decision. Puerto Rico is mired in debt, with more than $70 billion in liabilities to bondholders. According to Bloomberg, today's decision means that the U.S. territory will depend on Congress for help. Currently, legislators are working on a bill to manage debt restructuring and oversee the island's finances.
The island's electric utility PREPA has few other options and will likely maintain its current course thanks to today's ruling, which keeps the agreed-upon restructuring deal in place. Legislation recently signed in February allows the utility restructure its $9 billion in debt with creditors while setting ground rules for how it delivers power and overhauls its governance. A decision to revive the Recovery Act would have allowed Puerto Rico to bring PREPA into bankruptcy and void the current restructuring deal.
The restructuring deal is expected to reduce the utility's obligations by $600 million and postpone another $700 million-plus of its debt for five years. It also includes new standards for operations and an investment plan. Under the Restructuring Act, funds made available through the restructuring could be used to move PREPA to more natural gas and renewables generation and away from the dependence on expensive fuel oil-generated electricity that has contributed to its financial difficulties.
The legislation came as PREPA was running out of cash, creating potential opportunities for blackouts.
Puerto Rico's financial woes started in the 1990s, magnified with the loss of vital tax credits in 2006, and became insurmountable after the 2008 recession. Puerto Rico officials tried several avenues to relieve their debt burden. President Obama is urging the Senate to pass a bipartisan rescue package. The bill aimed at relieving the hefty debt burden passed the House last week.
Follow Krysti Shallenberger on Twitter