A federal judge has declared Puerto Rico’s debt restructuring law unconstitutional, leaving the commonwealth without a formal framework for restructuring its debt. Judge Francisco Besosa of the U.S. District Court for the District of Puerto Rico ruled that the Puerto Rico Public Corporation Debt Enforcement and Recovery Act violates the U.S. Constitution, as it is pre-empted by the federal Bankruptcy Code and thus rendered void by the constitution’s Supremacy Clause, which states that federal law trumps state and commonwealth law. Puerto Rico’s government appealed the ruling on Feb. 10. Puerto Rico passed the Recovery Act in June as the financial position of its electric utility, the Puerto Rico Electric Power Authority or PREPA, became increasingly precarious and officials wanted to make sure an orderly way existed to restructure its debt.
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