The Supreme Court on Friday accepted Puerto Rico’s petition to reconsider legislation that would have allowed it to restructure $20 billion in debt held by hedge funds and other investors.
On July 6, the 1st U.S. Circuit Court of Appeals in Boston affirmed a District Court order invalidating Puerto Rico’s Recovery Act restructuring regime, on the grounds that it conflicted with U.S. bankruptcy law.
The Supreme Court will consolidate that case and a related one involving the territory’s Government Development Bank. Arguments are expected in March. Justice Samuel A. Alito Jr. recused himself from the case, but the court order did not give a reason.
BlueMountain Capital Management, which said it and the funds it manages hold more than $400 million of bonds issued by Puerto Rico’s utilities, petitioned the Supreme Court to deny hearing the case. In its brief, BlueMountain said the utility authority, PREPA, agreed in its trust agreement that bondholders could seek to enforce the terms of the agreement, or appoint a receiver.
Two trusts advised by OppenheimerFunds and Franklin Advisers, holding $1.56 billion in PREPA bonds, also petitioned to have the case denied, arguing there is no circuit conflict, among other reasons.
“It seemed impossible but here we are,” said Cesar Miranda, secretary of Puerto Rico’s Department of Justice, in a statement. “I am also convinced that we will prevail at the end of the road and Puerto Rico will have an instrument that allows us to restructure its debt judiciously and orderly.”
The two cases are Puerto Rico vs. Franklin California Tax-Free Trust and Acosta-Febo vs. Franklin California Tax-Free Trust.
