Analyst: Supreme Court May Be Delaying Opinion on Local Restructuring Law

SAN JUAN – The U.S. Supreme Court, a financial analyst says, may decide to wait on issuing an opinion on the constitutionality of the Debt Enforcement and Recovery Act, a local restructuring law, until it becomes clear that Congress will act on a measure that will impose a fiscal control board over Puerto Rico and allow the island to restructure some of its debt.

Height Securities analyst Daniel Hanson

Daniel Hanson, an analyst with Height Securities, made the remarks to investors in his newsletter about two Puerto Rico related cases before the Supreme Court. The first deals with the constitutionality of the Recovery Act. The second, known as the Sánchez Valle case, asks the top court whether the commonwealth can prosecute individuals for crimes for which they were convicted of by a federal court.

“There is no way to know how and when decisions are timed, but we believe two things may be true. First, and most importantly, we believe that the Supreme Court may decide to wait on issuing an opinion on the Recovery Act until after it becomes clear that Congress either will or will not act, since action from Congress could give the Court cover to simply hold that the questions under consideration have been superseded by events,” Hanson stated.

“Second, we believe the Commonwealth will receive clarity on its double jeopardy case before it receives clarity on its Recovery Act case, and the Sánchez Valle ruling could contain clues to how the Court may be disposed regarding debt relief,” he added.

Hanson says investors should expect a ruling on the Recovery Act case, the Puerto Rico v. Franklin California Tax-Free Trust, later in June. He said he expects the top court will uphold the Recovery Act as unconstitutional.

“If the Court rules for the Commonwealth, they will almost certainly remand the case back to the First Circuit. Again, the impact here is muted because, while such a ruling would provide some daylight for Puerto Rico, using the Recovery Act to restructure bonds would remain 2+ years away. If the Court does the wildly unexpected and reverses without remand, the Commonwealth can use the Recovery Act immediately, but we consider such a move highly unlikely,” he said.

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