SCOTUS decisions could impact Puerto Rico board, PREPA restructuring

Two recent U.S. Supreme Court decisions could transform the Oversight Board and thus the outcome of the Puerto Rico Electric Power Authority bankruptcy. 

The decisions on Monday — ruling the president has the power to dismiss members of independent commissions —may lead President Donald Trump to dismiss and/or replace six of the seven board members as he tried to last year, parties and observers suggested. 

The only Trump appointee to the board so far, Justin Peterson, was by far the most pro-bondholder member, and some see the potential for a board with a very different approach if Trump were to get to name six or seven members.

The Puerto Rico Oversight, Management and Economic Stability Act specifies Republican legislative leaders nominate four candidates and Democrats nominate two, leaving the final seat at the president's discretion. PROMESA requires the leaders suggest candidates for each seat and the president selects from the lists. 

Peterson was appointed to the seat that the president alone chooses.

In summer 2026, Trump dismissed five members and then a sixth member of the board. Three of the six filed suit in the U.S. District Court for Puerto Rico and, in October, the judge granted a preliminary injunction in favor of board members Andrew Biggs and Betsy Rosa and board president Arthur Gonzalez, saying they should be reinstated immediately. 

The ruling was appealed to the U.S. Court of Appeals for the First Circuit and both cases were paused in late December to await the outcome of the related Supreme Court cases.

In an order, Appellate Judge Gustavo Gelpi, acknowledged the Trump v. Cook decision and ordered parties to file motions in the case within 30 days.

Peterson filed an amicus brief in the Puerto Rico District Court case supporting the president's right to dismiss and appoint the Oversight Board members. "The Supreme Court has rightly affirmed the president's authority to fire and appoint members of the [board]. The president will decide what happens next," Peterson wrote in an email to The Bond Buyer Monday. 

Puerto Rico commentator Cate Long said on the X site the board members have only the right to notice and a hearing as part of the termination process, as per the district court, which she expects the appeals court to uphold. 

Attorneys for the plaintiffs and the defendants didn't respond to requests for comment. The board declined to comment, saying it wasn't a party in the case. 

Under PROMESA the board has the right to propose bond restructurings. If the board became more pro-bondholder, it might offer a more generous restructuring of the PREPA bonds.

Earlier this week the board increased its offer to bondholders to $3 billion for the $8.5 billion in par the bondholders hold. The board said it was willing to also negotiate a contingent vehicle instrument through which the bondholders would get more money under certain circumstances. The board didn't indicate that it had significant bondholder support for the proposal.