This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Puerto Rico Weighs Restructuring Alternative

NEW YORK (The Deal) -- The addition of a potential restructuring alternative for Puerto Rico's public corporations has not produced a clear winner.

The Commonwealth of Puerto Rico's new restructuring framework for the corporations and the possibility of extending Chapter 9 bankruptcy to them both have advantages and disadvantages, sources said.

In June, the commonwealth passed a law commonly known as the Recovery Act that provides a framework for Puerto Rico's public corporations to restructure, which they had no formal way to do before. The act, however, has been plagued by investor litigation.

Partly in response to the lawsuits, Puerto Rico's resident commissioner and congressional representative, Pedro Pierluisi, introduced legislation in the U.S. House of Representatives on July 31 that would amend the U.S. Bankruptcy Code to give Puerto Rico's government the right to authorize some of its public corporations to restructure under Chapter 9. (All 50 states under the Bankruptcy Code can employ Chapter 9, but each state individually decides whether it permits its municipalities to employ the legislation.)

For bondholders, both solutions have pros and cons: sources said the Recovery Act provides some elements that are designed to be more creditor-friendly than Chapter 9, while a Chapter 9 extension would remove the uncertainty that comes with a brand new framework.

"The commonwealth intentionally drafted its [Recovery] Act to provide creditors a better deal than Chapter 9 requires," one source familiar with the situation said. The source explained that the Recovery Act requires public corporations to maximize the amounts distributable to creditors and also requires them to give creditors a 10-year note entitling them to half of free cash flow.

Still, "Puerto Rico's public corporations will be able to restructure successfully under Chapter 9. ... Congress has the absolute right to preempt the [Recovery] Act with Chapter 9, and there is no reason for Puerto Rico to object," the source concluded.

The National Bankruptcy Conference endorsed Pierluisi's Chapter 9 extension bill in a July 31 press release, noting that opening Chapter 9 to the commonwealth "would ensure immediate access to debt adjustment for Puerto Rico on a less constitutionally contested basis than the commonwealth's [Recovery] Act."

Fitch Ratings also came out Wednesday, Aug. 6, in support of the extension of Chapter 9 to Puerto Rico.

"Clarifying the rules for restructuring and aligning them to a federal standard with understandable precedent, albeit limited, and providing a federal forum for the proceeding would benefit bondholders. It would also protect the commonwealth from claims it is acting unjustly or arbitrarily and contrary to accepted norms," the ratings agency said.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs