On June 30, 2016, President Obama signed the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA)[1] into law. A copy of the Act can be found here.

Today’s U.S. Supreme Court decision in Commonwealth of Puerto Rico v. Franklin California Tax-Free Trustputs an end to one of Puerto Rico’s multi-pronged efforts to deleverage itself.

On Saturday, June 28, Puerto Rico Governor Alejandro Garcia Padilla signed into law the euphemistically-named “Puerto Rico Public Corporation Debt Enforcement and Recovery Act” (the “Act”).

On August 11, Franklin Funds and Oppenheimer Rochester Funds filed a second amended complaint, opposition to motion to dismiss and cross-motion for summary judgment in the litigation they previously filed in the United States District Court for Puerto Rico challenging the constitutionality and validity of Puerto Rico’s so-called Recovery Act.  The second amended complaint reiterates that a PREPA filing under the Recovery Act, which establishes debt adjustment procedures for most of Puerto Rico’s public corporations, is both “probable and imminent.”  The summary judgment motion see

At the end of “The Candidate”, Robert Redford’s title character, having won, famously asks, “What do we do now?”

A similar question can be asked now that the federal district court in Puerto Rico has struck down the Puerto Rico Public Corporation Debt Enforcement and Recovery Act.

The Commonwealth of Puerto Rico's efforts to deal with more than $70 billion in debt have been a magnet for media scrutiny during the last two years. A question frequently asked in connection with the island territory's struggles to stay afloat is whether Puerto Rico, as an unincorporated territory of the U.S., could resort to a bankruptcy filing as a means of alleviating its financial problems. 

A few reactions to today’s oral arguments before the U.S. Court of Appeals for the First Circuit regarding the validity of Puerto Rico’s Recovery Act:

Introduction

Puerto Rico v. Franklin CA Tax-Free Trust, No. 15-233
Acosta-Febo v. Franklin CA Tax-Free Trust, No. 15-255

It is said that muddy water is best cleared by leaving it be.  The Supreme Court’s December 4 decision to review the legality of Puerto Rico’s local bankruptcy law, the Recovery Act, despite a well-reasoned First Circuit Court of Appeals opinion affirming the U.S. District Court in San Juan’s decision voiding the Recovery Act on the grounds that it conflicts with Section 903 of the U.S. Bankruptcy Code, suggests, at a minimum, that at least four of the Justices deemed the questions raised too interesting to let the First Circuit have the last word.