NEW YORK Aug 21 (Reuters) - Puerto Rico on Friday asked the U.S. Supreme Court to overturn a ruling that blocks the restructuring of the commonwealth's public agencies, as the island grapples with trying to restructure its huge debt load.
In a petition seeking the court's review, which was provided by one of the island's lawyers, Puerto Rico said a lower court erred in concluding that U.S. bankruptcy law blocks the restructuring of the agencies' debts.
Puerto Rico also said the lower court decision leaves its public utilities in a legal "no man's land" because neither federal law nor the island's own law permits the needed restructuring.
"That decision leaves Puerto Rico's public utilities, and the 3.5 million American citizens who depend on them, at the mercy of their creditors," the commonwealth said. "This court's review is warranted - and soon."
Puerto Rico's Governor Alejandro Garcia Padilla shocked investors in June when he said the island's debt, totaling $72 billion, was unpayable and required restructuring. The island has been in recession for nearly a decade.
Puerto Rico passed the so-called Recovery Act last year to give certain public corporations, with around $20 billion in debt, the ability to restructure financially in an orderly process.
That was struck down by a federal court in Puerto Rico in February after bondholders in the island's power authority, argued in a lawsuit that the legislation contravened the U.S. bankruptcy code, which expressly excludes Puerto Rico. A U.S. appeals court in July affirmed the lower court decision.
A separate effort is underway in Congress to gain support for extending U.S. Chapter 9 to Puerto Rico entities.
"The basic question is whether Congress can say to the states that Chapter 9 is the only way to restructure municipal debt," said Stephen Lubben, a bankruptcy expert and law professor at Seton Hall university school of law. "Trouble is, Puerto Rico, which is not a full fledged state, has had trouble getting the courts to focus on that issue."
The Supreme Court typically hears arguments in only about 70 to 75 of the thousands of cases it is asked each year to consider, most often when lower courts are divided on an issue.
Puerto Rico said no such split is realistically possible in its case given its "anomalous treatment" under U.S. bankruptcy law. But it said the court should step in as the island tries to arrest a "financial meltdown" that threatens its future. (Reporting by Megan Davies and Jonathan Stempel; additional reporting by Nick Brown in San Juan; editing by Bernard Orr)
UPDATE 2-Puerto Rico asks U.S. Supreme Court to overturn restructuring ruling
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