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Supreme Court Agrees to Hear Puerto Rico On Debt Restructuring

The Supreme Court agreed to hear an appeal of a decision blocking Puerto Rico from using its courts to restructure some of its debt.
The Puerto Rican flag flies in front of its Capitol building. Ricardo Arduengo / AP

The Supreme Court has agreed to review a lower court’s decision that has blocked Puerto Rico from using bankruptcy laws in its courts to deal with its $72 billion-dollar debt that the island's officials have declared unpayable.

The court on Friday accepted an appeal of the lower court’s decision that has kept Puerto Rico, a U.S. territory, from restructuring some of its debt the way other states have been able to do. That decision also has forced Puerto Rico to plead for help from what has thus far been a reluctant U.S. Congress.

RELATED: Puerto Rico Makes Debt Payment; Governor Issues Distress Call

The decision comes after two days of heightened activity this week in which Puerto Rico Gov. Alejandro García Padilla declared the U.S. commonwealth has no more cash and said he was issuing a “distress call” to Congress.

The island met a Tuesday deadline for a $354 million debt payment, but Padilla also took executive action to divert some revenues from a payment due in January to pay for public services.

Eric LeCompte, executive director for Jubilee USA, which has been advocating for relief for Puerto Rico, said the Supreme Court’s decision to hear the appeal puts pressure on those involved to come up with a solution. Although, the act would only resolve some of the debt, it could create a model for how the rest of the debt could be restructured, LeCompte said.

Puerto Rico had passed legislation known as the Recovery Act last year that allowed some of its public corporation to restructure their debt, using its own courts. But a district court declared that law a violation of Puerto Rico’s constitution and that decision was upheld.

Legislation in Congress would authorize Puerto Rico to use Ch. 9 bankruptcy to restructure its debt, something municipalities such as New York and Detroit have done in the past. But the legislation has not moved, despite five congressional hearings and a fast-approaching adjournment of Congress.

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