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Lawmakers have missed one deadline to prevent Puerto Rico from defaulting on its debt, and they’re trying to figure out how to build support for legislation that could prevent a second missed payment, Bloomberg News reported today. Republicans are seeking to produce a revised bill as early as Wednesday, while U.S. Treasury Secretary Jacob J. Lew is heading to the commonwealth Monday to keep up the pressure for Congress to act. All sides are under pressure after a week-long congressional recess, punctuated by Puerto Rico’s default a week ago on most of a $422 million debt payment. Puerto Rico is in an economic recession that’s poised to worsen as residents continue to leave, threatening to deepen the fiscal crisis that’s pushing the island to default on a growing share of its $70 billion of debt. House Natural Resources Committee Chairman Rob Bishop (R-Utah) plans to craft the Republican legislation that would create a federal oversight board to help manage the island and supervise a debt restructuring, according to a committee aide. It will be similar to an earlier version that ran into snags, the aide said, adding that the measure could be advanced by the panel as early as next week. Read more. 

What are the next steps for Puerto Rico to resolve its financial distress? A panel of experts at ABI’s New York City Bankruptcy Conference on Thursday will examine potential remedies. Click here to register. 

For more news and analysis of Puerto Rico's debt crisis, be sure to visit ABI's "Puerto Rico in Distress" webpage. 

The House Financial Services committee approved two bills yesterday that would repeal a post-recession bailout fund and give Congress control of the Consumer Financial Protection Bureau’s (CFPB) budget, The Hill reported today. The committee passed (33-20) the Taking Account of Bureaucrats’ Spending (TABS) Act, which would subject the CFPB to the congressional appropriations process. The CFPB is currently funded by a dedicated revenue stream from the Federal Reserve and operates on a budget requested by the director. Republicans, most of whom oppose the CFPB’s existence, have long been critical of the bureau’s funding process and Congress’s limited control. The TABS Act would give legislators more say over CFPB operations and opens the door to defunding the agency all together. Democrats have fought against several Republican efforts to curb CFPB authority, and ranking Democrat Rep. Maxine Waters (Calif.) insisted the TABS Act is intended to “repeal the very existence of the bureau.” The committee also passed a bill (34-22) to repeal Title II of Dodd-Frank regulatory reform law. That section created the Orderly Liquidation Authority (OLA), which authorizes Federal Deposit Insurance Commission (FDIC) funding to dismantle a major domestic financial firm without igniting an economic crisis. The FDIC would later be reimbursed through a fee on other large firms. Read more.

What aspects of the CFPB should you be concerned about for your practice? Attend the “What is the CFPB, and Why Do I Care?” session tomorrow at ABI’s Annual Spring Meeting to find out! 

The constantly shifting political dynamics underlying congressional efforts to help Puerto Rico resolve its financial crisis were still in flux yesterday, as the main lawmaker shepherding the measure through the House continued trying to persuade Republican members to get on board, according to MorningConsult.com. A vote scheduled for today in the House Natural Resources Committee was postponed as it became apparent that members still had questions about the evolving measure. After a brief committee session for members to submit opening statements, Chairman Rob Bishop (R-Utah) adjourned. Rep. Raul Grijalva (D-Ariz.), the committee’s ranking member, told reporters immediately after the meeting that the talks on the legislation are continuing. Both he and Resident Commissioner Pedro Pierluisi, Puerto Rico’s representative in Congress, hope the vote can take place next week. Earlier yesterday, Bishop huddled behind closed doors with members of the conservative Republican Study Committee after a hearing on the Puerto Rico issue. Several Republican members of the Natural Resources panel, some of whom sit on the Republican Study Committee, indicated they remained skeptical of the legislation. Read more. 

In related news, creditors of Puerto Rico's Government Development Bank yesterday withdrew a lawsuit that sought to prevent a run on the bank ahead of a $422 million debt payment due on May 1, Reuters reported. Hedge funds including Brigade Capital Management and Claren Road Asset Management, which hold some of GDB's $3.75 billion in debt, said that the lawsuit had no purpose now that Puerto Rico Governor Alejandro Garcia Padilla has declared a fiscal emergency at the bank. The emergency declaration, issued on Saturday, prevents GDB from lending and paying certain debts, and blocks depositors from withdrawing any money not required to fund essential services. This is essentially what the creditors had sought in their lawsuit, which was filed four days before Garcia Padilla's declaration. Read more. 

For more news and analysis of Puerto Rico's debt crisis, be sure to visit ABI's "Puerto Rico in Distress" webpage. 

The House voted yesterday to add a new section to the Bankruptcy Code specifically for banks, a measure meant to provide an alternative to President Obama's financial reform law for ensuring that big banks can fail without bailouts, the Washington Examiner reported today. The legislation "ensures that shareholders and creditors, not taxpayers, bear the losses related to the failure of a financial company," said House Judiciary Committee Chairman Bob Goodlatte (R). The Republican House passed the bank bankruptcy legislation last Congress, but it was not taken up by the then Democratic-led Senate. Republicans in the Senate have not advanced similar legislation this year.

House Republicans released a draft of a rescue plan for Puerto Rico yesterday that they hoped could quickly garner bipartisan support and win over skeptics on the island, on Wall Street and in Congress, the New York Times reported today. The plan, being drafted by Republicans on the House Natural Resources Committee, in consultation with Democrats in Congress and the Treasury Department, calls for putting Puerto Rico’s finances under a presidentially appointed oversight board — a bitter pill to many on the island. The plan would also establish guidelines for restructuring some portion of Puerto Rico’s $72 billion of debt, “where necessary.” While Puerto Rico would not be granted standing to seek relief in bankruptcy — something its leaders wanted — it could get some of the legal tools found in bankruptcy as long as it first jumps through a number of hoops. To some on the island, any federal oversight board at all is a deal-breaker. Shortly after a summary of the committee’s approach began to circulate late last week, the governor of Puerto Rico, Alejandro García Padilla, denounced it as “shameful and degrading,” and something that would deprive the island “of its own government.” The president of the Puerto Rican Senate, Eduardo Bhatia, said upon reading the proposal that he was deeply offended by the way it was written, which he said “was from the 18th century,” evoking “the worst colonial subjugations.” Read more. 

In related news, some of Puerto Rico’s largest creditors, unsatisfied with a commonwealth debt-reorganization proposal and the direction of congressional legislation, are working together to draft their own restructuring plan, Bloomberg News reported yesterday. Representatives of bondholder groups and bond insurance companies met on Monday at the New York office of PJT Partners Inc., which is advising MBIA’s National Public Finance Guarantee Corp., to begin crafting a plan that would reduce Puerto Rico’s $70 billion in obligations. The commonwealth last week gave its creditors a revised restructuring proposal, which the people say includes losses that are larger than they’re willing to accept. The advisers and lawyers for traditional municipal-bond investors, hedge funds and insurers met as U.S. lawmakers move closer to legislation. The House Natural Resources Committee yesterday made public a discussion draft of a bill that would establish a control board to oversee Puerto Rico’s debt restructuring and annual budgets. It’s the most comprehensive legislation yet advanced by congressional Republicans to help address the island’s finances. Read more. 

For more news and analysis of Puerto Rico's debt crisis, be sure to visit ABI's "Puerto Rico in Distress" webpage.

Politicians in Washington, D.C., are coalescing around a financial plan to rescue Puerto Rico, just weeks before an expected major default on bond payments that would spread more turmoil through the island’s shaky economy, the New York Times reported today. The plan, being drafted as legislation by House Republicans, would not grant Puerto Rico’s most fervent request: permission to restructure its entire $72 billion debt in bankruptcy. It would, however, give the island certain crucial tools that bankruptcy proceedings can offer — but only if it first comes under close federal oversight and meets other conditions. The oversight would be provided by a five-member voting board, selected by the president of the United States from candidates with expertise in finance, law or other relevant fields; at least two would have their primary residence in Puerto Rico. The secretary of the Treasury and the governor of Puerto Rico would also serve on the board, but would not have a vote. Read more. 

A related Bloomberg News report found that the emerging U.S. House Republican bill to address Puerto Rico’s debt crisis would create a strong oversight board and a mechanism to force creditors to accept a restructuring deal, according to a congressional official familiar with the legislative efforts and a written summary. The board’s debt restructuring powers could include all creditors, but only after certain conditions are met, a congressional official said. The partial draft also provides for the board to petition a judge for a court-supervised restructuring, which would amount to a cram-down mechanism to force resistant investors to accept a deal. The proposal would be an alternative to a process under chapter 9 of the U.S. bankruptcy code, which Republicans have opposed. As part of the plan, lawmakers are also considering safeguarding Puerto Rico from legal action by temporarily prohibiting creditor lawsuits. Read more. 

For more news and analysis of Puerto Rico's debt crisis, be sure to visit ABI's "Puerto Rico in Distress" webpage.