The U.S. House Judiciary Committee plans hearings to consider making Puerto Rico's public corporations and municipalities eligible for Chapter 9 bankruptcy.
The hearings will take place in the next few weeks, a Congressional staff source told The Bond Buyer Tuesday.
Puerto Rico isn't currently eligible to use Chapter 9 to adjust the debt of its municipalities and public corporations. On Feb. 9 a federal court in Puerto Rico struck down.
Puerto Rico Debt Enforcement and Recovery Act, which was enacted last year to allow the island's public corporations a process for the island's public corporations to restructure debt.
The Puerto Rico Electric Power Authority had to draw on its debt service reserves to make a July 1 debt payment. PREPA, which has more than $8 billion of bonds outstanding, is now in discussions with its creditors, and there had been speculation that it might ultimately use the Recovery Act.
Puerto Rico has appealed the ruling against the Recovery Act to a higher court.
On Feb. 11 Puerto Rico Resident Commissioner Pedro Pierluisi introduced a bill in the U.S. Congress that would allow Puerto Rico's public corporations and municipalities to use Chapter 9. Pierluisi is Puerto Rico's nonvoting member of the U.S. House of Representatives.
"In the wake of the district court's decision, it is more clear than ever that Congress should act swiftly to amend the U.S. bankruptcy code to empower the government of Puerto Rico to address its insolvent government-owned corporations to restructure their debts under Chapter 9," Pierluisi said in introducing the bill. "If Congress does not act, government-owned corporations in Puerto Rico will be left without any legal framework - at either the federal or territory level - to adjust their debts."
According to a story in Caribbean Business on Thursday, Government Development Bank for Puerto Rico President Melba Acosta Febo said that Puerto Rico's "administration fully supports efforts to amend Chapter 9 to include public corporations, but explained they had to move on their own given the uncertain political will to make the changes in Washington D.C., or the time it would take for such a change to take place."
A person close to the administration said she couldn't confirm that this was the Acosta's position. The government is considering all pathways to secure the island's economic future, she said.
The National Bankruptcy Conference, an organization of lawyers, law professors and bankruptcy judges, have endorsed Pierluisi's proposal.
