Investors in Puerto Rican bonds are pushing competing agendas in Washington, D.C., over whether the struggling U.S. territory should be allowed to force debt cuts on creditors, ahead of new draft legislation expected this week from House Republicans, Reuters reported yesterday. The opposing views among Puerto Rico's stakeholders highlight the complexity of the island's fiscal crisis, where creditors of 18 different public debt issuers could face drastically different fates depending on how their claims are prioritized. Puerto Rico, with $70 billion in total debt and a 45 percent poverty rate, faces economic collapse without a solution to its debt. Governor Alejandro Garcia Padilla yesterday signed local legislation letting him declare a moratorium on any debt payment as he deems necessary, ahead of a potential default by the island's Government Development Bank on a $422 million payment due May 1. Last month, the Republican-led House Natural Resources Committee drafted a bill to put the island's finances under a federal control board and facilitate debt restructuring talks. If those talks failed, Puerto Rico or its agencies could restructure debt under rules similar to U.S. bankruptcy law, including in certain situations via "cramdown" — forcing cuts on creditors that do not agree to them. The cramdown measure did not sit well with some creditors who believed a Puerto Rico restructuring should be subject to creditor votes. Read more.
ABI Resident Scholar Prof. Melissa Jacoby speaks with Prof. Charles Tabb about his research on bankruptcy and the Fifth Amendment's "takings" clause to current legislative proposals for remedying Puerto Rico's debt crisis. Click here to listen.
For more news and analysis of Puerto Rico's debt crisis, be sure to visit ABI's "Puerto Rico in Distress" webpage.
