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A chapter 9 solution to Puerto Rico’s economic and financial woes, as the House Judiciary Committee is contemplating via H.R. 870, is ill-conceived on several grounds, according to a commentary in today’s Roll Call. First and foremost, the bill’s passage would override with retroactive effect the bond indentures of the millions of investors throughout the U.S. who have bought Puerto Rico’s bonds, mostly through mutual funds. H.R. 870 would give carte blanche to the Commonwealth to break its solemn pledge that our bonds would be paid in accordance with the laws and contracts under which they were issued, according to the commentary. Second, H.R. 870 would authorize only the island’s public utilities and agencies to restructure their debts under the supervision of a federal bankruptcy judge. Depending on how broadly it would be implemented, a chapter 9 process would thus apply merely to between one-fifth and one-third of the Commonwealth’s more than $70 billion of debts to bondholders and banks, according to the commentary. The bulk of public indebtedness would have to continue to be serviced in full and on a timely basis.

Puerto Rico’s junk-rated power authority got a two-week extension from creditors that will give it more time to sort out its finances, Bloomberg News reported today. The accord allows the Puerto Rico Electric Power Authority (PREPA) to negotiate with bondholders, banks and debt insurers outside of court on ways to revamp its operations and finances. Talks have been going on since August. It’s the fourth time for creditors to consent to prolong the accord, which was set to expire yesterday. PREPA has $9 billion of obligations and has breached bond contracts by using reserves for debt payments.

Puerto Rico’s publicly owned electric monopoly presented creditors with a restructuring plan, a month before a roughly $400 million payment comes due that analysts say the utility can’t pay, the Wall Street Journal reported today. The plan includes efforts to modernize the authority and increase efficiencies, with a goal of stabilizing power rates, according to Chief Restructuring Officer Lisa Donahue, who declined to talk about a possible debt restructuring, citing continuing confidential talks with creditors. The power authority, known as PREPA, is negotiating with creditors ahead of a June 4 deadline to extend talks or face a possible default. PREPA has been drawing on reserves to make debt payments and doesn’t have enough in those accounts to make the July payment, its trustee said in an April bond disclosure. The episode highlights the volatility of Puerto Rico’s fiscal situation as the commonwealth and its indebted public agencies face a series of deadlines in coming weeks, each of which has the potential to change investor attitudes toward the island’s debt.

Rather than pass a bill that bears directly on ongoing negotiations between Puerto Rico Electric Power Authority (PREPA) and its bondholders, Congress should use this opportunity to reconsider every aspect of the U.S. relationship with Puerto Rico, according to a Forbes.com commentary today. Maybe Puerto Rico should be a state, or maybe it should be completely independent of the U.S., according to the commentary, which went on to say, “They’ve sort of been in limbo for quite some time now, so let’s figure it out once and for all.” According to Carlos Colón de Armas, acting dean of the School of Business Administration at the University of Puerto Rico, “A Puerto Rican default should not surprise anyone. For eight years, from 2005 through 2012, government expenses exceeded revenues on average by approximately $1 billion annually.” As of 2014, virtually all of the Puerto Rico Government Development Bank’s (GDB) $9 billion in loans were to government enterprises, according to the commentary.

A consortium of York Capital Management, NRG Energy Inc and ITC Holdings Corp have proposed investing as much as $3.5 billion in Puerto Rico's electrical infrastructure, Reuters reported yesterday. The island's electricity is supplied by struggling electric power authority PREPA, which has debt of around $9 billion and is due to present creditors with a business plan on Monday. The proposed investment would be for a total of $2.5 billion to $3.5 billion and would be subject to due diligence. PREPA, which provides electricity to Puerto Rico's roughly 3.5 million residents, charges consumers around double the average rate customers pay in the U.S. mainland. It is under pressure to convert from burning oil to generate power to generally cheaper and cleaner natural gas.

Puerto Rico’s $72 billion debt saga has become a booming business for Washington, D.C., lobbyists, who are developing websites, creating advertisements and lining up the support of conservative advocacy groups, Bloomberg News reported today. The junk-rated island’s woes have been a topic of debate on Capitol Hill since February, when Pedro Pierluisi, the island’s resident commissioner in the U.S. House of Representatives, introduced H.R. 870. to amend the Bankruptcy Code to treat Puerto Rico as a state. The bill would give Puerto Rico the option to authorize its municipalities and public agencies to file for chapter 9 protection. Chapter 9 currently doesn’t apply in Puerto Rico, a territory since the Spanish-American War.

Puerto Rico’s descent into junk has made its bonds more attractive to Goldman Sachs Asset Management and OppenheimerFunds Inc. even as their rivals flee, Bloomberg News reported yesterday. Goldman Sachs increased its stake in Puerto Rico bonds to $1.3 billion as of May 5 from $351 million in February 2014, when the island was cut to speculative grade, according to data compiled by Bloomberg. OppenheimerFunds has snapped up sales-tax backed debt since the downgrade. The two are bucking the trend among the 10 largest mutual-fund holders of Puerto Rico bonds by increasing their stakes as yields on some securities have climbed to 10 percent. The split among the mutual funds highlights how Puerto Rico debt has increasingly become too speculative for many municipal-bond buyers, who seek tax-free income, not the outsized returns chased by hedge funds.

A judge last week approved the $17.25 million sale of Doral Financial Corp.’s insurance arm to Popular Insurance LLC, which won a competitive auction earlier this month for the business, the Wall Street Journal reported today. The order was signed on Friday by Bankruptcy Judge Shelley C. Chapman. According to prior court filings, Popular Insurance won a 28-round auction on May 12 against Anglo-Puerto Rico Insurance Corp., which had served as the opening bidder with a $10.75 million offer. The two companies were the only qualified bidders. The judge had approved procedures for the auction early last month, including a $250,000 breakup fee that goes to Anglo-Puerto Rico since it served as the lead bidder but lost the auction. Doral had told the judge in court filings that Doral Insurance Agency LLC would likely have experienced a “rapid and substantial decline” in value if it wasn’t sold quickly.

Puerto Rico’s Senate approved a bill, with amendments, that increases the cash-strapped island’s sales tax, potentially raising revenue that will help balance the fiscal 2016 budget, Bloomberg News reported today. The Senate passed (14-12) the measure yesterday with an amendment to exempt certain processed foods. The amended bill now goes back to the House of Representatives, which narrowly approved the sales-tax hike last week. Governor Alejandro Garcia Padilla and lawmakers from his ruling Popular Democratic Party agreed on a framework for the tax boost May 14. The bill would raise the levy to 11.5 percent from 7 percent through March, after which it would transition into a value-added tax.