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Creditors of Puerto Rico's sales tax authority, COFINA, made a counter-offer yesterday to Puerto Rico's Feb. 1 debt exchange proposal, saying that they would extend maturities but forgo cuts to principal that the original offer would entail, Reuters reported. The plan represents the first formal response from creditors to the debt-exchange proposal from the U.S. territory, which has been in testy negotiations with creditors for months as it struggles with a $70 billion debt load, a 45 percent poverty rate and shrinking tax base as locals flock to the U.S. mainland. The COFINA creditors offered to reduce the amount of sales tax pledged for their bonds in the near-term, in exchange for being paid in full later. Under Puerto Rico's Feb. 1 proposal, COFINA holders would face repayment reductions of about 51 percent. COFINA holders are owed about $17.3 billion overall, with senior COFINA holders owed about $7.6 billion of that. Senior holders include Metropolitan Life Insurance Co, Goldentree Asset Management and Whitebox Advisors. Yesterday’s plan was proposed by some of the senior holders. Read more. 

In related news, Sen. Orrin Hatch (R-Utah) yesterday demanded detailed financial disclosure about the island's economic crisis in a letter to Puerto Rico's governor, and questioned U.S. Treasury Secretary Jack Lew about debt restructuring proposals for the island during a Senate Finance Committee hearing, Reuters reported. Hatch, who chairs the Senate committee with oversight on Puerto Rico's fiscal crisis, in December co-sponsored a bill to bring the island's finances under a federal control board. But his exchange with Lew yesterday, coupled with his 4,000-word letter to Puerto Rico Governor Alejandro Garcia Padilla, may be stronger signs that Republican leaders are serious about addressing Puerto Rico's economic crisis. The U.S. commonwealth faces $70 billion in bond debt, a 45 percent poverty rate and a shrinking tax base as locals increasingly flock to the mainland United States. Federal legislators, mostly on the Republican side, have demanded more transparency from the island, whose fiscal year 2014 financials are months behind schedule. Read more. 

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

President Obama is proposing to provide Puerto Rico with billions of dollars in relief, in addition to allowing the territory to declare bankruptcy on some of its debt, The Hill reported today. The president’s fiscal 2017 budget proposal, released yesterday, includes several policy changes aimed squarely at helping the territory boost its economy, and get out from under a debt burden island officials say is unmanageable. Among the changes are bankruptcy power for Puerto Rico, an expansion of the Earned Income Tax Credit to the island, and increased Medicaid funds. All the policy changes, if enacted, would apply to Puerto Rico and other U.S. territories. The president’s plan would also subject the island to “strong fiscal oversight,” but does not detail the exact nature of that oversight. Read more. 

In related news, officials from the U.S. territory of Guam, which issued $143 million of tax-free water bonds on Tuesday, said that borrowing costs could swell if Congress extends chapter 9 protection to U.S. territories as a way for Puerto Rico to reduce its $70 billion of debt, Bloomberg News reported yesterday. “When it comes to the policymakers in Washington, D.C., dealing with the Puerto Rico situation, I’ve made it very clear: Guam has no need nor desire to look at any type of backdoor such as bankruptcy protection,” said Guam Governor Eddie Calvo, a Republican who in 2014 won a second term to lead the island of 167,500. “That’s something we’ve always believed has made our triple tax-exempt bond sales very attractive — that we were treated a certain way,” Calvo said. Calvo’s argument is the same as the one made by some Senate Republicans and Puerto Rico investors, who say retroactively changing the rules around the commonwealth’s bonds could disrupt the functioning of the $3.7 trillion municipal market. Yet the proposal is most pressing for the four territories besides Puerto Rico that issue bonds that are tax-exempt at the federal, state and local level nationwide: American Samoa, Guam, the Northern Mariana Islands and the U.S. Virgin Islands. Read more. 

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

A House committee will hear Treasury's Antonio Weiss discuss an analysis of Puerto Rico on Feb. 25, as lawmakers coalesce around a bill that would give the territory's authorities bankruptcy access in return for creation of a financial stability council, Bond Buyer reported today. The exact language of the bill, sponsored by Rep. Sean Duffy (R-Wis.) may not be included in final legislation, but lawmakers think the bill could serve as the foundation for legislation that joins the Republican support for a fiscal control or oversight board with the Democrat's call to give the territory's authorities the ability to restructure their debt. Weiss, a counselor to Treasury Secretary Jack Lew who has worked to resolve Puerto Rico's debt crisis, said at a Feb. 5 panel on the commonwealth sponsored by the Bipartisan Policy Center, that he has seen "very positive discussions taking place on both sides of the aisle" in Congress. He also pointed out that there now seems to be more agreement that any plan to help the commonwealth should include both restructuring and oversight. Read more.

In related news, Richard Ravitch, an adviser to the governor during New York City’s fiscal crisis in the 1970s, said that Puerto Rico needs to have broad bankruptcy powers to reduce its $70 billion of debt and revive its economy, Bloomberg News reported yesterday. The Caribbean island of 3.5 million and its agencies are unable to file for bankruptcy protection, as cities including Detroit have done. Puerto Rico Governor Alejandro Garcia Padilla has been seeking to persuade Congress to give the island some legal ability to restructure its debt to strengthen its hand with creditors. Ultimately, federal lawmakers will likely grant Puerto Rico’s request, said Ravitch, a former New York Lieutenant Governor who’s working as an unpaid adviser to the island. “The risk of social disorder and consequential responsibilities for the federal government will ultimately make all of Congress realize that this has to be done,” Ravitch said. He said the plan should include a “federal oversight board insuring that the restructuring plan is fair to the people of Puerto Rico. In the long term of the creditors, it’s the only way of solving the problem.” Read more.

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

Lawmakers looking at a plan to spend $715 million over a decade rescuing Detroit’s ailing school district said on Thursday that they will not pass legislation that affects the funding in other districts across the state, the Associated Press reported on Friday. Instead, Republican and Democratic legislators are talking with Gov. Rick Snyder’s (R) administration about other funding sources, such as diverting a portion of tobacco tax revenue or the state’s settlement with tobacco companies. The Senate Government Operations Committee on Thursday held the first of a number of hearings on legislation to split the state-managed district in two this summer and gradually return control to a locally elected board. The district’s 46,000 students would attend school in a new district, while the old one would remain intact to retire $515 million in operating debt over eight to 12 years. A commission of state appointees created to review Detroit’s finances in the wake of bankruptcy would oversee the new district’s budget until the debt is repaid and other conditions are met.

Puerto Rico’s debt-restructuring advisers appear willing to give creditors and lawmakers one of the key conditions demanded as part of any debt restructuring: a degree of federal oversight of the commonwealth’s finances, Bloomberg News reported on Friday. “It’s clear that Congress, to the extent that it’s going to share its bankruptcy power with the commonwealth and allow us to use it to address the complexity of this restructuring, I think everybody’s acknowledged that a control board is an essential feature,” said Jim Millstein, the founder of restructuring adviser Millstein & Co. Millstein, along with attorney Richard Cooper of Cleary Gottlieb Steen & Hamilton LLP and Melba Acosta, the island’s debt chief, updated House and Senate staff members on Friday in Washington, D.C., on the commonwealth’s plan to reduce its debt load to $26.5 billion from $49.2 billion, a 46 percent cut. The House Natural Resources Committee last Tuesday spent about two hours discussing the possibility of putting a U.S. authority in place to help end to the chronic budget strains that have pushed the Caribbean island to default on some of its bonds. The idea has gained backing with Republicans as the House seeks to craft legislation by the end of March to assist the U.S. territory, though the scope of the new federal powers is still being considered. 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 city of San Bernardino, Calif., which has been stuck in bankruptcy for more than three years, has reached a repayment deal with its fiercest courtroom foe: a European bank owed about $52 million worth of municipal bonds, Dow Jones Daily Bankruptcy Review reported today. San Bernardino lawyers told Judge Meredith Jury that they have reached a tentative settlement with the bondholder but refused to say how much money the 200,000-resident city offered to repay. Under an earlier proposal, the Luxembourg bank that owns the bonds would get $655,000 plus interest. The deal still needs approval from bank officials and San Bernardino city councilors, according to documents filed in U.S. Bankruptcy Court in Riverside, Calif. The potential deal would silence one of the last remaining major critics of the city's turnaround strategy, making it easier for the city to get out of the bankruptcy case it filed in 2012. Bank lawyers have objected to the city's plan, saying that the city should raise taxes instead of forcing steep cuts on debt holders.