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Senate Democrats have unveiled legislation to alleviate Puerto Rico’s debt woes, urging that the island be allowed to declare bankruptcy on all of its debt, The Hill reported today. The bill released yesterday would allow the U.S. territory to restructure its $72 billion in outstanding debt and create a fiscal oversight board for the island. “Congress has to act immediately to fix the federal funding shortfalls and give Puerto Rico the tools it needs to fully restructure its debt,” said Sen. Bob Menendez (D-N.J.), one of the bill’s sponsors. The other Democratic sponsors of the bill are Sens. Sherrod Brown (Ohio), the top Democrat on the Banking Committee; Maria Cantwell (Wash.), the ranking member of the Energy and Natural Resources Committee; and Sen. Richard Blumenthal (Conn.). The measure is likely to be opposed by Republicans, who have been reluctant to let Puerto Rico declare bankruptcy on large amounts of its debt. Investment firms with significant holdings in Puerto Rican debt are also likely to make their displeasure known. At the same time, House Republicans are trying to craft their own bill to address the debt crisis before a March 31 deadline set by Speaker Paul Ryan (R-Wis.). Time is of the essence for Congress; Puerto Rico is expected to default on some of its legally owed payments as early as May. Read more. 

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

Democrats in the Senate said that they would introduce two bills today to give Puerto Rico broad powers to shed some of its $72 billion of bonds while also giving its public workers’ pensions priority over the bonds, the New York Times DealBook blog reported. The legislation includes ideas that the Obama administration first put forward in October, when senior Treasury and White House officials said that Puerto Rico risked a humanitarian crisis if it did not soon get the power to unilaterally reduce its debt. (As a United States territory, Puerto Rico currently has no ability to file for bankruptcy protection.) Certain elements of the bill will probably meet stiff opposition from Republicans, who control both houses of Congress and who have expressed concern about the fairness and constitutionality of any island-wide debt restructuring. Many investors in Puerto Rico’s bonds acquired their holdings years ago, when the island’s laws made restructuring impossible. The draft legislation proposes to designate Puerto Rico’s public pensions as “senior secured debt,” which is quite likely to be contentious. Some American lawmakers have already questioned whether Congress can change the priorities of Puerto Rico’s pensions and bonds without adverse legal consequences. Read more. 

A related Wall Street Journal commentary today called for an independent financial-oversight authority and audited financial statements for Puerto Rico ahead of a “voluntary debt restructuring.” Puerto Rico’s government and agency debt tops $70 billion, and the Obama administration says the commonwealth needs bankruptcy protection. The House Committee on Natural Resources late last week released the rough outlines of its own solution. Both options make it likely that Puerto Rico’s borrowing costs will go up, because both introduce the specter of an unprecedented write-down of at least some debt, according to the commentary. But the House committee seems interested in leaving Puerto Rico with the power to prove itself as a trustworthy borrower. Granting Puerto Rico access to chapter 9 retroactively would change existing contracts, which specify that receivership, not bankruptcy, is the path to follow in the event of insolvency. States are not allowed to declare bankruptcy as New York, California and Illinois, all in dire straits, understand perfectly well. If Puerto Rico is allowed to walk away from its territorial debt, some states will want the same privilege, according to the commentary. Read more. (Subscription required.) 

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

Puerto Rico’s House of Representatives approved a bill to allow the island’s main water utility to issue debt with a stronger repayment pledge, a step aimed at allowing the agency to raise money needed to avoid missing payments on other bonds, Bloomberg News reported yesterday. The measure was approved by a vote of 35 to 10, according to Michelle Gonzalez, spokeswoman for House Speaker Jaime Perello. The legislation enables the Puerto Rico Aqueduct and Sewer Authority (PRASA) to create a new corporation to sell securitization bonds, which would be backed by revenue that goes directly to repaying the debt rather than flowing through PRASA’s accounts, according to Rafael “Tatito” Hernandez, sponsor of the legislation and chair of the House Treasury Committee. Bond proceeds would finance capital projects and pay contractors. Read more.

In related news, Congress should make legislative changes intended to allow Puerto Rico to better address its debt crisis, but those changes shouldn’t include providing federal funds or allowing the island the declare chapter 9 bankruptcy, according to Heritage Action for America, MorningConsult.com reported. Bankruptcy “would be an example of Congress changing the rules of the game to the benefit of some and at the expense of others,” the political arm of the Washington, D.C.-based Heritage Foundation wrote in a March 10 memo. Instead, the group recommended two legislative fixes that conservatives say would help the commonwealth’s economic growth problem, which the memo characterized as the main challenge facing Puerto Rico. Heritage Action suggested repealing the Jones Act, which prohibits ships that aren’t built in the U.S. from transporting goods between two U.S. ports. Heritage also recommended allowing Puerto Rico’s government to set its own minimum wage. Read more.

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

Rep. Rob Bishop (R-Ohio), chair of the House Committee on Natural Resources, on Friday met with Puerto Rico Governor Alejandro Garcia Padilla to discuss the island's financial crisis ahead of legislative rescue plans expected from Congress in the coming weeks as huge debt payments loom, Reuters reported. Puerto Rico is battling $70 billion in debt and a 45 percent poverty rate, and Garcia Padilla has said the U.S. territory would consider a moratorium on debt payments in May and July to avoid a government shutdown. Garcia Padilla spokesman Jesus Manuel Ortiz told said that the governor hosted Bishop in his San Juan office, where he stressed the effects of the financial crisis, which include delays in tax refunds, and the need for any rescue package to preserve Puerto Rico's autonomy. Read more. 

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

William R. Clark, the mystery man at the heart of what is being called “a monumental fraud” in Puerto Rico, broke his silence this week, answering questions under oath about whether conspirators at the island’s electric utility overcharged residents by hundreds of millions of dollars and worsened the island’s debt crisis, the New York Times reported today. “I never received a thing,” said Clark, who for 18 years led the authority’s fuel oil purchasing office. “Not money, not gifts, not bribes, not trips, not parties.” Clark retired in 2014, just as oil prices were crashing and the bottom dropped out of the electric authority’s finances. A widely viewed television documentary in Puerto Rico at the time, “Why Do We Pay So Much?” reported that oil companies and other grateful vendors had just thrown Clark a retirement party, and showed him walking into a high-end restaurant while the announcer talked about possible conflicts of interest. Meanwhile, negotiators have been struggling to restructure the electric authority’s $9 billion of debt — one-eighth of the island’s total $72 billion — and special investigators have been homing in on its Fuel Procurement Office, scrutinizing the way it did business with oil suppliers and the laboratories that tested whether each shipment measured up to clean-air requirements. Read more.

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