The U.S. Supreme Court agreed on Friday to consider Puerto Rico’s appeal regarding the Puerto Rico Public Corporation Debt Enforcement & Recovery Act (the “Recovery Act”), which was passed by its legislature last June and would allow Puerto Rico’s public utilities to restructure $20 billion in debt. Puerto Rico’s appeal asks the Court to reverse the decision of the U.S. Court of Appeals for the First Circuit, which held that the Recovery Act is unconstitutional. Puerto Rico argues that the Recovery Act is essential because, unlike U.S. states, Puerto Rico, a U.S. commonwealth, is precluded from utilizing Chapter 9 of the U.S. Bankruptcy Code. A decision is not expected until June 2016.

In the meantime, U.S. Senate Democrats introduced legislation in July that would allow the commonwealth to seek protection under Chapter 9 of the U.S. Bankruptcy Code. In October, the White House announced its proposal for legislation that would go even further – it would allow federal territories to restructure debt issued by the central government, a power that is unavailable to U.S. municipalities and states. Both plans have been met with significant opposition by bondholders and Republican lawmakers.

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