Title 48, Territories and Insular PossessionsRelease 119-110
§2231 Creditor Collective Action
Title 48 › CHAPTER 20 — PUERTO RICO OVERSIGHT, MANAGEMENT, AND ECONOMIC STABILITY › SUBCHAPTER VI — CREDITOR COLLECTIVE ACTION › § 2231
Summary
Lets issuers change bond terms when enough bondholders approve and a court OKs it. Pools of similar bonds are used for voting, and the Oversight Board (called the Administrative Supervisor) runs the process. Administrative Supervisor: the Oversight Board for the territory. Authorized Territorial Instrumentality: a territorial agency the Oversight Board allows to use these rules. Calculation Agent: the party that counts who owns what and tallies votes. Capital Appreciation Bond: a bond where interest is added to the principal instead of paid now. Convertible Capital Appreciation Bond: same as above but it can turn into a regular interest-paying bond later. Information Agent: the party that sends notices to bondholders. Insured Bond: a bond with a financial insurance or guarantee. Issuer: the territory government or an authorized territorial agency that issued or guaranteed bonds. Modification: any change to bond terms, like exchanges or repurchases. Outstanding: whether a bond counts for voting. Outstanding Principal: the principal amount that counts for voting, including accreted value for capital appreciation bonds. Pool: a group of bonds set up for voting. Qualifying Modification: a proposed change that follows the required process. Secured Pool: a Pool made only of bonds backed by a lien. Territory Government Issuer: the government of Puerto Rico or another covered territory. The Administrative Supervisor makes Pools for each issuer and separates bonds by security, priority, guarantees, or pledged revenue when needed. Bonds that are cancelled, already paid or provided for, substituted, or held by the issuer or an entity it controls do not count as Outstanding. Before votes, the issuer must tell the Calculation Agent which bonds do not count and must give financial and debt information to the Calculation Agent, the Information Agent, and the Administrative Supervisor. A Qualifying Modification can come from consulting holders or from a voluntary agreement, but must offer equal treatment to similar holders and be certified by the Administrative Supervisor. The Information Agent must notify holders; if addresses are unknown, notices may go to paying agents, clearing systems, or be published. A change is approved if holders representing at least two-thirds of the Outstanding Principal that vote in each Pool vote yes, and a majority of the outstanding principal in each Pool actually vote. The issuer can appoint Calculation and Information Agents with the Administrative Supervisor’s approval. Once the voting rules are met, the Administrative Supervisor certifies compliance and a federal district court for the territory (or the District of Hawaii if the territory has no district court) enters an order, the change becomes binding on all holders, and secured holders keep their liens or receive equivalent value. The court has exclusive power to hear challenges and can only undo a change if it is clearly inconsistent with these rules.
Full Legal Text
Title 48, §2231
Territories and Insular Possessions, Source: USLM XML via OLRC
(a)Definitions
In this subchapter:
(1)Administrative Supervisor (2) Authorized Territorial Instrumentality
The term “Administrative Supervisor” means the Oversight Board established under section 2121 of this title.
(3)Calculation Agent
The term “Calculation Agent” means a calculation agent appointed in accordance with subsection (k).
(4)Capital Appreciation Bond
The term “Capital Appreciation Bond” means a Bond that does not pay interest on a current basis, but for which interest amounts are added to principal over time as specified in the relevant offering materials for such Bond, including that the accreted interest amount added to principal increases daily.
(5)Convertible Capital Appreciation Bond
The term “Convertible Capital Appreciation Bond” means a Bond that does not pay interest on a current basis, but for which interest amounts are added to principal over time as specified in the relevant offering materials and which converts to a current pay bond on a future date.
(6)Information Agent
The term “Information Agent” means an information agent appointed in accordance with subsection (l).
(7)Insured Bond
The term “Insured Bond” means a bond subject to a financial guarantee or similar insurance contract, policy or surety issued by a monoline insurer.
(8)Issuer
The term “Issuer” means, as applicable, the Territory Government Issuer or an Authorized Territorial Instrumentality that has issued or guaranteed at least one Bond that is Outstanding.
(9)Modification
The term “Modification” means any modification, amendment, supplement or waiver affecting one or more series of Bonds, including those effected by way of exchange, repurchase, conversion, or substitution.
(10)Outstanding
The term “Outstanding,” in the context of the principal amount of Bonds, shall be determined in accordance with subsection (b).
(11)Outstanding Principal
The term “Outstanding Principal” means—
(A)for a Bond that is not a Capital Appreciation Bond or a Convertible Capital Appreciation Bond, the outstanding principal amount of such Bond; and
(B)for a Bond that is a Capital Appreciation Bond or a Convertible Capital Appreciation Bond, the current accreted value of such Capital Appreciation Bond or a Convertible Capital Appreciation Bond, as applicable.
(12)Pool
The term “Pool” means a pool established in accordance with subsection (d).
(13)Qualifying Modification
The term “Qualifying Modification” means a Modification proposed in accordance with subsection (g).
(14)Secured Pool
The term “Secured Pool” means a Pool established in accordance with subsection (d) consisting only of Bonds that are secured by a lien on property, provided that the inclusion of a Bond Claim in such Pool shall not in any way limit or prejudice the right of the Issuer, the Administrative Supervisor, or any creditor to recharacterize or challenge such Bond Claim, or any purported lien securing such Bond Claim, in any other manner in any subsequent proceeding in the event a proposed Qualifying Modification is not consummated.
(15)Territory Government Issuer
The term “Territory Government Issuer” means the Government of Puerto Rico or such covered territory for which an Oversight Board has been established pursuant to section 2121 of this title.
(b)Outstanding Bonds
In determining whether holders of the requisite principal amount of Outstanding Bonds have voted in favor of, or consented to, a proposed Qualifying Modification, a Bond will be deemed not to be outstanding, and may not be counted in a vote or consent solicitation for or against a proposed Qualifying Modification, if on the record date for the proposed Qualifying Modification—
(1)the Bond has previously been cancelled or delivered for cancellation or is held for reissuance but has not been reissued;
(2)the Bond has previously been called for redemption in accordance with its terms or previously become due and payable at maturity or otherwise and the Issuer has previously satisfied its obligation to make, or provide for, all payments due in respect of the Bond in accordance with its terms;
(3)the Bond has been substituted with a security of another series; or
(4)the Bond is held by the Issuer or by an Authorized Territorial Instrumentality of the Territory Government Issuer or by a corporation, trust or other legal entity that is controlled by the Issuer or an Authorized Territorial Instrumentality of the Territory Government Issuer, as applicable.
For purposes of this subsection, a corporation, trust or other legal entity is controlled by the Issuer or by an Authorized Territorial Instrumentality of the Territory Government Issuer if the Issuer or an Authorized Territorial Instrumentality of the Territory Government Issuer, as applicable, has the power, directly or indirectly, through the ownership of voting securities or other ownership interests, by contract or otherwise, to direct the management of or elect or appoint a majority of the board of directors or other persons performing similar functions in lieu of, or in addition to, the board of directors of that legal entity.
(c)Certification of disenfranchised Bonds
Prior to any vote on, or consent solicitation for, a Qualifying Modification, the Issuer shall deliver to the Calculation Agent a certificate signed by an authorized representative of the Issuer specifying any Bonds that are deemed not to be Outstanding for the purpose of subsection (b) above.
(d)Determination of Pools for voting
The Administrative Supervisor, in consultation with the Issuer, shall establish Pools in accordance with the following:
(1)Not less than one Pool shall be established for each Issuer.
(2)A Pool that contains one or more Bonds that are secured by a lien on property shall be a Secured Pool.
(3)The Administrative Supervisor shall establish Pools according to the following principles:
(A)For each Issuer that has issued multiple Bonds that are distinguished by specific provisions governing priority or security arrangements, including Bonds that have been issued as general obligations of the Territory Government Issuer to which the Territory Government Issuer pledged the full or good faith, credit, and taxing power of the Territory Government Issuer, separate Pools shall be established corresponding to the relative priority or security arrangements of each holder of Bonds against each Issuer, as applicable, provided, however, that the term “priority” as used in this section shall not be understood to mean differing payment or maturity dates.
(B)For each Issuer that has issued senior and subordinated Bonds, separate Pools shall be established for the senior and subordinated Bonds corresponding to the relative priority or security arrangements.
(C)For each Issuer that has issued multiple Bonds, for at least some of which a guarantee of repayment has been provided by the Territory Government Issuer, separate Pools shall be established for such guaranteed and non-guaranteed Bonds.
(D)Subject to the other requirements contained in this section, for each Issuer that has issued multiple Bonds, for at least some of which a dedicated revenue stream has been pledged for repayment, separate Pools for such Issuer shall be established as follows—
(i)for each dedicated revenue stream that has been pledged for repayment, not less than one Secured Pool for Bonds for which such revenue stream has been pledged, and separate Secured Pools shall be established for Bonds of different priority; and
(ii)not less than one Pool for all other Bonds issued by the Issuer for which a dedicated revenue stream has not been pledged for repayment.
(E)The Administrative Supervisor shall not place into separate Pools Bonds of the same Issuer that have identical rights in security or priority.
(4)Notwithstanding the preceding provisions of this subsection, solely with respect to a preexisting voluntary agreement as described in section 2124(i)(3) of this title, such voluntary agreement may classify Insured Bonds and uninsured bonds in different Pools and provide different treatment thereof so long as the preexisting voluntary agreement has been agreed to by—
(A)holders of a majority in amount of all uninsured bonds outstanding in the modified Pool; and
(B)holders (including insurers with power to vote) of a majority in amount of all Insured Bonds.
(e)Authorization of Territory Instrumentalities
A covered territorial instrumentality is an Authorized Territorial Instrumentality if it has been specifically authorized to be eligible to avail itself of the procedures under this section by the Administrative Supervisor.
(f)Information delivery requirement
Before solicitation of acceptance or rejection of a Modification under subsection (h), the Issuer shall provide to the Calculation Agent, the Information Agent, and the Administrative Supervisor, the following information—
(1)a description of the Issuer’s economic and financial circumstances which are, in the Issuer’s opinion, relevant to the request for the proposed Qualifying Modification, a description of the Issuer’s existing debts, a description of the impact of the proposed Qualifying Modification on the territory’s or its territorial instrumentalities’ public debt;
(2)if the Issuer is seeking Modifications affecting any other Pools of Bonds of the Territory Government Issuer or its Authorized Territorial Instrumentalities, a description of such other Modifications;
(3)if a Fiscal Plan with respect to such Issuer has been certified, the applicable Fiscal Plan certified in accordance with section 2141 of this title; and
(4)such other information as may be required under applicable securities laws.
(g)Qualifying Modification
A Modification is a Qualifying Modification if one of the following processes has occurred:
(1)Consultation process
(A)the Issuer proposing the Modification has consulted with holders of Bonds in each Pool of such Issuer prior to soliciting a vote on such Modification;
(B)each exchanging, repurchasing, converting, or substituting holder of Bonds of any series in a Pool affected by that Modification is offered the same amount of consideration per amount of principal, the same amount of consideration per amount of interest accrued but unpaid and the same amount of consideration per amount of past due interest, respectively, as that offered to each other exchanging, repurchasing, converting, or substituting holder of Bonds of any series in a Pool affected by that Modification (or, where a menu of instruments or other consideration is offered, each exchanging, repurchasing, converting, or substituting holder of Bonds of any series in a Pool affected by that Modification is offered the same amount of consideration per amount of principal, the same amount of consideration per amount of interest accrued but unpaid and the same amount of consideration per amount of past due interest, respectively, as that offered to each other exchanging, repurchasing, converting, or substituting holder of Bonds of any series in a Pool affected by that Modification electing the same option under such menu of instruments); and
(C)the Modification is certified by the Administrative Supervisor as being consistent with the requirements set forth in section 2124(i)(1) of this title and is in the best interests of the creditors and is feasible.
(2)Voluntary agreement process
The Administrative Supervisor has issued a certification that—
(A)the requirements set forth in section 2124(i)(2) of this title and subsection (g)(1)(B) have been satisfied; or
(B)the Modification is consistent with a restructuring support or similar agreement to be implemented pursuant to the law of the covered territory executed by the Issuer prior to the establishment of an Oversight Board for the relevant territory.
(h)Solicitation
(1)Upon receipt of a certification from the Administrative Supervisor under subsection (g), the Information Agent shall, if practical and except as provided in paragraph (2), submit to the holders of any Outstanding Bonds of the relevant Issuer, including holders of the right to vote such Outstanding Bonds, the information submitted by the relevant Issuer under subsection (f)(1) in order to solicit the vote of such holders to approve or reject the Qualifying Modification.
(2)If the Information Agent is unable to identify the address of holders of any Outstanding Bonds of the relevant Issuer, the Information Agent may solicit the vote or consent of such holders by—
(A)delivering the solicitation to the paying agent for any such Issuer or Depository Trust Corporation if it serves as the clearing system for any of the Issuer’s Outstanding Bonds; or
(B)delivering or publishing the solicitation by whatever additional means the Information Agent, after consultation with the Issuer, deems necessary and appropriate in order to make a reasonable effort to inform holders of any Outstanding Bonds of the Issuer which may include, notice by mail, publication in electronic media, publication on a website of the Issuer, or publication in newspapers of national circulation in the United States and in a newspaper of general circulation in the territory.
(i)Who may propose a Modification
For each Issuer, a Modification may be proposed to the Administrative Supervisor by the Issuer or by one or more holders of the right to vote the Issuer’s Outstanding Bonds. To the extent a Modification proposed by one or more holders of the right to vote Outstanding Bonds otherwise complies with the requirements of this subchapter, the Administrative Supervisor may accept such Modification on behalf of the Issuer, in which case the Administrative Supervisor will instruct the Issuer to provide the information required in subsection (f).
(j)Voting
For each Issuer, any Qualifying Modification may be made with the affirmative vote of the holders of the right to vote at least two-thirds of the Outstanding Principal amount of the Outstanding Bonds in each Pool that have voted to approve or reject the Qualifying Modification, provided that holders of the right to vote not less than a majority of the aggregate Outstanding Principal amount of all the Outstanding Bonds in each Pool have voted to approve the Qualifying Modification. The holder of the right to vote the Outstanding Bonds that are Insured Bonds shall be the monoline insurer insuring such Insured Bond to the extent such insurer is granted the right to vote Insured Bonds for purposes of directing remedies or consenting to proposed amendments or modifications as provided in the applicable documents pursuant to which such Insured Bond was issued and insured.
(k)Calculation Agent
For the purpose of calculating the principal amount of the Bonds of any series eligible to participate in such a vote or consent solicitation and tabulating such votes or consents, the Territory Government Issuer may appoint a Calculation Agent for each Pool reasonably acceptable to the Administrative Supervisor.
(l)Information Agent
For the purpose of administering a vote of holders of Bonds, including the holders of the right to vote such Bonds, or seeking the consent of holder of Bonds, including the holders of the right to vote such Bonds, to a written action under this section, the Territory Government Issuer may appoint an Information Agent for each Pool reasonably acceptable to the Administrative Supervisor.
(m)Binding effect
(1)A Qualifying Modification will be conclusive and binding on all holders of Bonds whether or not they have given such consent, and on all future holders of those Bonds whether or not notation of such Qualifying Modification is made upon the Bonds, if—
(A)the holders of the right to vote the Outstanding Bonds in every Pool of the Issuer pursuant to subsection (j) have consented to or approved the Qualifying Modification;
(B)the Administrative Supervisor certifies that—
(i)the voting requirements of this section have been satisfied;
(ii)the Qualifying Modification complies with the requirements set forth in section 2124(i)(1) of this title; and
(iii)except for such conditions that have been identified in the Qualifying Modification as being non-waivable, any conditions on the effectiveness of the Qualifying Modification have been satisfied or, in the Administrative Supervisor’s sole discretion, satisfaction of such conditions has been waived;
(C)with respect to a Bond Claim that is secured by a lien on property and with respect to which the holder of such Bond Claim has rejected or not consented to the Qualifying Modification, the holder of such Bond—
(i)retains the lien securing such Bond Claims; or
(ii)receives on account of such Bond Claim, through deferred cash payments, substitute collateral, or otherwise, at least the equivalent value of the lesser of the amount of the Bond Claim or of the collateral securing such Bond Claim; and
(D)the district court for the territory or, for any territory that does not have a district court, the United States District Court for the District of Hawaii, has, after reviewing an application submitted to it by the applicable Issuer for an order approving the Qualifying Modification, entered an order that the requirements of this section have been satisfied.
(2)Upon the entry of an order under paragraph (1)(D), the conclusive and binding Qualifying Modification shall be valid and binding on any person or entity asserting claims or other rights, including a beneficial interest (directly or indirectly, as principal, agent, counterpart, subrogee, insurer or otherwise) in respect of Bonds subject to the Qualifying Modification, any trustee, any collateral agent, any indenture trustee, any fiscal agent, and any bank that receives or holds funds related to such Bonds. All property of an Issuer for which an order has been entered under paragraph (1)(D) shall vest in the Issuer free and clear of all claims in respect of any Bonds of any other Issuer. Such Qualifying Modification will be full, final, complete, binding, and conclusive as to the territorial government Issuer, other territorial instrumentalities of the territorial government Issuer, and any creditors of such entities, and should not be subject to any collateral attack or other challenge by any such entities in any court or other forum. Other than as provided herein, the foregoing shall not prejudice the rights and claims of any party that insured the Bonds, including the right to assert claims under the Bonds as modified following any payment under the insurance policy, and no claim or right that may be asserted by any party in a capacity other than holder of a Bond affected by the Qualifying Modification shall be satisfied, released, discharged, or enjoined by this provision.
(n)Judicial review
(1)The district court for the territory or, for any territory that does not have a district court, the United States District Court for the District of Hawaii shall have original and exclusive jurisdiction over civil actions arising under this section.
(2)Notwithstanding section 2126(e) of this title, there shall be a cause of action to challenge unlawful application of this section.
(3)The district court shall nullify a Modification and any effects on the rights of the holders of Bonds resulting from such Modification if and only if the district court determines that such Modification is manifestly inconsistent with this section.
Reference
Citations & Metadata
Citation
48 U.S.C. § 2231
Title 48, Territories and Insular Possessions
Last Updated
Sep 23, 2026
Release point: 119-110