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Morgan Stanley said that Puerto Rico’s attempt at a sovereign-like debt restructuring without complete lawmaking authority is likely to fall short in the absence of congressional intervention, Bloomberg News reported on Friday. “We doubt Puerto Rico’s ability to execute this style of restructuring without U.S. Congressional action, keeping us from adopting a clearly bullish position,” Michael Zezas, chief municipal strategist at Morgan Stanley in New York, wrote in a report dated Sept. 10. Puerto Rico’s fiscal crisis should spur Congress to help the island negotiate with its creditors, either by implementing a fiscal control board at the federal level or allowing some public corporations to file for chapter 9 bankruptcy projection, Morgan Stanley said. Unlike cities and municipalities of U.S. states, the island’s localities cannot access chapter 9. Governor Alejandro Garcia Padilla’s administration on Wednesday unveiled a proposal that estimates Puerto Rico will have only $5 billion of available funds to repay $18 billion of debt-service costs over the next five years. Read more.

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

Puerto Rico plans to present a debt-restructuring offer in a few weeks to address a projected $13 billion shortfall in bond payments due over the next five years that the commonwealth says it can no longer afford to pay, Bloomberg News reported yesterday. “We’ll be ready with a first proposal as to how to make the $18 billion worth of contractual debt service fit to the available resources we have under this plan,” Jim Millstein, the island’s chief restructuring adviser, said in San Juan, after Governor Alejandro Garcia Padilla’s administration released what they’re calling a fiscal and economic growth plan. Puerto Rico said that it only has $5 billion available for the payments. Prices of some of the commonwealth’s bonds, which have been trading at distressed levels, fell after Puerto Rico made it clear in the proposal that it would seek to force losses on most debt investors. It will also pursue a moratorium on principal payments for several years, according to Melba Acosta, the island’s main debt official. Read more. 

In related news, Puerto Rico Governor Alejandro Garcia Padilla wants bondholders to accept less than they’re owed to help the island dig out from its fiscal crisis, but few may be willing to go along, according to Moody’s Investors Service. “It is unlikely that holders of the many Puerto Rico bonds will agree to forgo or defer substantial sums of promised principal and interest,” said Moody’s analyst Ted Hampton. “There is a high probability of protracted litigation, particularly on the part of investors holding general obligation or other securities with strong legal protections.” The expected bondholder response shows the difficulty Puerto Rico faces as it embarks on a restructuring unprecedented in the $3.6 trillion municipal market. Puerto Rico general-obligation bonds are protected by the commonwealth constitution and others are backed by dedicated revenues, which may lead some investors to challenge the island in court. Read more.

For further news and analysis, be sure to visit ABI’s “Puerto Rico in Distress” webpage. 

New York Gov. Andrew Cuomo led a delegation to Puerto Rico on Monday in hopes of helping the territory address its debt crisis, saying the situation “is threatening the livelihoods of millions of people — many with strong connections to New York,” the Wall Street Journal reported today. Cuomo said that he supported giving Puerto Rico the ability to pursue bankruptcy protection, a position that puts him in line with most of his fellow Democrats. Cuomo also endorsed the notion of giving Puerto Rico “relief from the Medicaid cap,” saying that the territory should have “fairness” with regard to Medicaid reimbursement. Prominent Democrats, including Puerto Rican New York City Council Speaker Melissa Mark-Viverito and presidential contender Hillary Clinton, whom the governor has endorsed, have long backed giving Puerto Rico’s municipal agencies the ability to seek chapter 9 bankruptcy.

Marco Rubio opposes giving Puerto Rico the same type of bankruptcy protection available to U.S. towns and cities mired in fiscal crisis, the Florida senator will say Friday as he visits the American territory for the first time as a 2016 contender, the Politico reported today. In an op-ed to be published in both Spanish and English, Rubio blames the "liberal ideology" of Puerto Rico's politicians, creating a "toxic brew of economic stagnation, higher taxes and bloated government." "Allowing Puerto Rican municipalities to reorganize their debts under chapter 9 of the U.S. Bankruptcy Code would not solve Puerto Rico’s problems and should only be a measure of last resort considered if Puerto Rico takes significant steps to fix its budget and economic mess,” he writes. The op-ed was timed to coincide with Rubio’s first visit to the island as a presidential candidate. And his position sets him apart from other 2016 contenders, including Jeb Bush and Hillary Clinton, who have supported chapter 9 bankruptcy protection for the deeply indebted island. Read more.

For more on Puerto Rico’s debt crisis, be sure to visit ABI’s “Puerto Rico in Distress” webpage. 

Puerto Rico's public utility PREPA and a key bondholder group have reached the framework of a debt restructuring deal that would include a repayment reduction of up to 15 percent for bondholders, Reuters reported today. The deal, under which PREPA would issue new, securitized debt, likely with a higher credit rating, had not been officially signed and could still fall apart. But parties were verbally committed to it yesterday, ahead of a midnight deadline to try to forge a restructuring pact. PREPA, buckling under $9 billion in total debt, has been trying to negotiate a restructuring with an ad hoc group of its bondholders for about a year. A consensual deal at PREPA, seen as a microcosm of Puerto Rico's broader fiscal troubles, could generate momentum to help the island sort out its $72 billion debt load. Under a forbearance agreement with creditors, PREPA was safe from lawsuits as sides negotiated. Creditors could terminate the deal if a restructuring pact was not reached by midnight on Tuesday, Sept. 1. Read more.

In related news, Puerto Rico development bank officials are preparing to enter confidential debt restructuring talks with a group of the agency’s bondholders as soon as next week, Bloomberg News reported yesterday. The Government Development Bank, which has about $5 billion of debt and acts as a lender to the U.S. territory and its local governments, has drafted a non-disclosure agreement that would govern talks with a bondholder group represented by law firm Davis Polk & Wardwell LLP. Puerto Rico representatives will ask some of the creditors to sign the agreement in order to start negotiations as soon as Sept. 8. Read more.

As Puerto Rico continues to map out plans to restructure nearly $72 billion in municipal debt, ABI has launched the "Puerto Rico in Distress" website to help navigate the news and analysis of the island's ongoing debt crisis. The site draws upon a number of resources to provide the latest news and analysis on Puerto Rico’s debt crisis, as well as proposals for restructuring its municipal debt (as a U.S. territory, Puerto Rico is not eligible to restructure its debts under chapter 9 of the Bankruptcy Code). For updated news and analysis on Puerto Rico's debt crisis, be sure to visit, and bookmark, ABI's "Puerto Rico in Distress" website. 

Moody’s Investors Service said that Hillview, Ky., the first city to file for bankruptcy since Detroit, may struggle to prove it’s insolvent and in need of court protection, Bloomberg News reported yesterday. Because of an $11.4 million legal judgment to a local company, Hillview filed for protection Aug. 20. The locality of about 8,000 people has about $13.8 million in debt, compared with revenue of $2.5 million in the 2014 fiscal year. Though the burden seems insurmountable, Hillview under Kentucky law can issue bonds to cover losses in legal judgments and pay off the resolution over the course of a decade, Moody’s analyst Nathan Phelps said Monday in a report. The local company, Truck America Training LLC, has indicated it may fight the city’s bankruptcy by asking that the judge overseeing the case for permission to interview city officials under oath and to gain access to internal city financial documents.

Puerto Rico said that Governor Alejandro Garcia Padilla granted an extension for when advisers are scheduled to deliver a proposal to restructure the commonwealth’s $72 billion debt burden to Sept. 8 because government officials were focused in the past week on the possible impact of tropical storm Erika, Bloomberg News reported on Friday. The plan had been scheduled to be sent to Garcia Padilla on Aug. 30. The work of the designated group, the consultant’s analysis, and the final drafting of the document have not been completed, Víctor Suárez Meléndez, the governor’s chief of staff, said in a statement Saturday. A Puerto Rico restructuring would be the largest ever in the $3.6 trillion municipal-bond market. After a history of borrowing to push out debt payments and fill budget gaps, the commonwealth is seeking to break the cycle with investors declining to lend more money. The governor said in June that the island could no longer afford to make its debt payments.

Puerto Rico and its main electric utility have spent more than $60 million in legal and advisory fees from firms such as Cleary Gottlieb Steen & Hamilton LLP and Millstein & Co. over the past two years as the governor and public finance officials have sought to restructure the island’s $72 billion debt burden, Bloomberg News reported today. Commonwealth officials plan to unveil a proposal next week expected by analysts to seek a reduction in debt payments that may lead to protracted negotiations with creditors. Unlike Detroit, Puerto Rico localities cannot file for chapter 9 bankruptcy protection, leaving the island without a clear legal framework to resolve its debt crisis. “It makes sense they would need to rely on consultants more than the average issuer in a similar situation,” said Matt Fabian, a partner at Concord, Mass.-based Municipal Market Analytics. “It’s an incredibly complex restructuring, with a lot of different investor groups, a lot of different securities and moving parts.” A Puerto Rico restructuring would be the largest ever in the $3.6 trillion municipal-bond market.