• The Puerto Rico Oversight, Management, and Economic Stability Act, (PROMESA) was signed into law by President Barack Obama on June 30, 2016, to allow Puerto Rico to restructure its debt and achieve fiscal responsibility.
• PROMESA established the Financial Oversight and Management Board for Puerto Rico to provide a method for a covered territory to achieve fiscal responsibility and access to the capital markets (PROMESA, Sec. 101 (a)).
• Before PROMESA, Puerto Rico faced an unsustainable burden of more than $72 billion in debt and more than $55 billion in unfunded pension liabilities with no legal way to restructure the liabilities or reduce debt payments. Puerto Rico Governor Alejandro García Padilla had declared the debt could not be paid.
• Puerto Rico’s bonds were issued by more than a dozen public entities. The borrowers range from the central government to public utilities.

PROMESA provides two mechanisms for restructuring this debt.

• One set of procedures, PROMESA’s Title III, follows roughly the U.S. bankruptcy law. Puerto Rico’s creditors are separated into groups based on the different legal rights of their claims, such as the kind of bonds they own or other claims, such as pensions. The Oversight Board negotiates plans of adjustments to lower Puerto Rico’s debt to sustainable levels, subject to a confirmation process by the federal court. Some creditor groups might reject the plan, but once the court confirms the plan it becomes binding on all groups, even those who rejected it.
• The other mechanism, PROMESA’s Title VI, requires that all groups of creditors accept the plan before the court can confirm it, and is primarily aimed at financial debt, not pensions or other types of claims.

PROMESA also requires the Government of Puerto Rico and the Oversight Board to develop a fiscal plan that provides a method to achieve fiscal responsibility and access to the capital markets. The Fiscal Plan provides estimates of revenues and expenditures, ensures the funding of essential public services, provides adequate funding for public pension systems, provides for the elimination of structural deficits through efficiency measures, and provides for capital expenditures and investments necessary to promote economic growth, among other requirements.

• The Oversight Board is an entity within the Puerto Rico Government (PROMESA, Sec. 5 (19) (B) and Sec. 101 (C) (1)).
• The seven members of the Oversight Board are volunteers. They do not receive pay or other compensation (PROMESA, Sec. 101 (g)).
• All seven members are appointed by the President of the United States. Six of the members are selected from lists provided to the President by the majority and the minority leaders in the U.S. Senate and House of Representatives. One member is appointed at the President’s sole discretion. The members serve a three-year term, and thereafter until replaced by newly appointed members. (PROMESA, Sec. 101 (e) (2)).
• The Governor of Puerto Rico, or the Governor’s designee, is an ex officio member of the Oversight Board without voting rights. (PROMESA, Sec. 101 (e) (3)).

• PROMESA gives the Oversight Board two mandates: To help Puerto Rico achieve fiscal responsibility with pro-growth fiscal reforms and renew access to capital markets. (PROMESA, Sec. 101 (a)).  
• Access to capital markets requires debt restructurings because the market will not buy new debt of Puerto Rico before it can handle its existing debt. The Oversight Board represents the Puerto Rico Government entities having debt in the debt restructuring process.

• The Oversight Board is an independent entity within the Puerto Rico Government, not an agency, department, establishment, or instrumentality of the federal government (PROMESA, Sec. 101 (c)).   
• Neither the Governor nor the Legislature may exercise any control, supervision, oversight, or review over the Oversight Board or its activities (PROMESA, Sec. 108).