Puerto Rico failed in its bid to revive a restructuring law that investors say conflicts with the U.S. bankruptcy code, a blow to the commonwealth as it falls deeper into a fiscal crisis.
Lawyers for Puerto Rico had asked the U.S. Court of Appeals in Boston to reinstate a local law to help it deal with $72 billion in debt. The court resisted Monday, agreeing instead with a San Juan judge who threw out the statute in February.
The dispute centers on whether the island, which is excluded from a part of the bankruptcy code used by municipal entities and cities such as Detroit, can make its own rules for allowing public agencies to seek protection from creditors.
The commonwealth may ask the U.S. Supreme Court to consider the case, Cesar Miranda Rodriguez, Puerto Rico’s attorney general, said in a statement.
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The court decision “is very disappointing,” the attorney general said. “It’s arbitrary and inconceivable that Puerto Rico will be deprived of a tool that allows for an orderly negotiation of public debt.”
Puerto Rico may also turn to Congress, where a bill sponsored by Puerto Rico’s non-voting member, Pedro Pierluisi, would allow certain public agencies to file for Chapter 9 protection. It hasn’t moved since a February hearing.
Democratic Sens. Charles Schumer of New York and Richard Blumenthal of Connecticut last week announced plans to sponsor a similar statute, and Democratic presidential candidate Hillary Clinton on Tuesday announced support for legislative change.
Barring help from lawmakers, the decision means that debt-burdened Puerto Rico agencies must continue piecemeal negotiations with creditors, a process that could lead to chaos if discussions break down and investors end up suing the agencies and one another to reclaim what they’re owed.
The island has struggled to grow since 2006 and its debt has been trading at distressed levels for two years. Puerto Rico’s population shrank about 7 percent in the decade through 2014, losing about 280,000 residents, according to U.S. census data. By 2050, it may be down to 3 million people, according to a Pew Research Center analysis.