Bankruptcy Solution May Leave Puerto Rico Marooned

With Puerto Rico’s financial crisis now in full swing, island lawmakers may be loading too many eggs in the bankruptcy basket.

Commonwealth officials are united in pursuing congressional authorization to let its debt-laden public corporations right-size their bloated balance sheets under Chapter 9 bankruptcy protection, something they cannot do under existing law.

Stateside supporters include Treasury Secretary Jack Lew and 2016 presidential hopefuls Hillary Clinton and Jeb Bush, all of whom have called for an extension of Chapter 9 eligibility. But the bankruptcy push is starting to draw flak, and it’s easy to see why. Fixing multiple public entities through bankruptcy will be costly, time-consuming and unpredictable, said Jorge San Miguel, a Puerto-Rico based government relations attorney.

At a congressional hearing in February, Government Development Bank for Puerto Rico (GDB) President Melba Acosta was lauding Chapter 9 as an “orderly and consensus-based process” open to both local stakeholders and onshore creditors.

It may be orderly, but it’s hardly predictable. No one knows if Puerto Rico’s public entities could prove insolvency, as required under Chapter 9, or if their bond debts, most of which are secured by special revenue streams, could even be adjusted.

By Andrew Scurria

Bankruptcy Solution May Leave Puerto Rico Marooned