Creditors challenge Puerto Rico’s financial oversight board

Puerto Rico’s financial oversight board might live to guard the island’s restructuring for another day.

During Supreme Court arguments Tuesday, justices appeared to lean in favor of leaving the board in place.

Congress created the board, which is tasked with monitoring the territory’s financial health, three years ago. Aurelius Investments, one of Puerto Rico’s creditors, as well as the Puerto Rican electrical industry and irrigation workers union, argued that the appointment of the board was unconstitutional because its members weren’t confirmed by the Senate.

But the justices seemed skeptical of this assessment. Justice Samuel Alito, for instance, asked a lawyer representing the creditors whether the case wasn’t really about money rather than safeguarding the Constitution.

Late last month, the oversight board released a plan to restructure $35 billion of Puerto Rico’s debt and more than $50 billion of pension liabilities. The plan would cut the debt by more than 60%.

The island territory declared itself unable to pay its debts in June 2015, and filed the largest municipal bankruptcy in US history two years later.

Prior to Tuesday’s hearing, a lower court ruled that the process that resulted in the naming of some of the board’s members violated the Constitution’s appointments clause, which dictates that federal officers have to be confirmed by the Senate.

But the justices seemed reluctant to accept a key part of the plaintiffs’ argument, that the oversight board acts primarily on a federal rather than local level.