House Republicans and Democrats have reached a deal with the White House to try to rescue Puerto Rico from $70 billion in debt as millions of Americans in the cash-strapped U.S. territory struggle with the loss of basic services, ABC News reported yesterday. A revised House bill would create a board to help manage the territory's financial obligations and restructure some debt. Negotiations between the Obama administration and House Speaker Paul Ryan's office helped finalize the legislation. Ryan said that the legislation would avoid an eventual taxpayer bailout. Puerto Rico has already missed several payments to creditors; a $2 billion installment, the largest yet, is due July 1. A vote could happen next week in the Natural Resources Committee. Puerto Rican Gov. Alejandro García Padilla said that the bill still isn't "consistent with our country's basic democratic principles." He wants a less powerful board that can't fully control the island's finances. Under the legislation, the control board would require Puerto Rico to create a fiscal plan. That includes directing the territory to provide adequate funds for public pensions, which the government has underfunded by more than $40 billion.
Republicans on the House Natural Resources Committee yesterday introduced a new measure aimed at giving Puerto Rico the tools to restructure about $70 billion in debt, MorningConsult.com reported today. The legislation — H.R. 5278, sponsored by Rep. Sean Duffy (R-Wis.) — includes several “minor” changes to the previous measure, H.R. 4900, according to Committee Chairman Rob Bishop (R-Utah). According to a Natural Resources Committee summary, the new measure would block a new Labor Department overtime rule from applying to Puerto Rico. The changes also include language that clarifies the fiscal oversight board’s authority to protect prioritized payments to bondholders. Those payments are required by the commonwealth’s constitution. The legislation also bars Puerto Rico’s governor “from executive any budgetary adjustment” between the enactment of the bill and the establishment of its oversight board, and has language to “reiterate the promotion of voluntary restructuring agreements and explicitly honor voluntary agreements that are already in place,” the summary said. Click here to read the bill summary prepared by the House Natural Resources Committee.
Click here to read Rep. Pedro Pierluisi’s statement on the new Puerto Rico legislation.
In related news, Puerto Rico Governor Alejandro García Padilla declared a state of emergency for the island’s Highways and Transportation Authority, suspending the transfer of toll-road revenue to bondholders and imposing a stay on legal claims, Bloomberg News reported yesterday. While the order doesn’t establish a moratorium on bond payments, it halts a revenue stream to investors that wasn’t subject to the “clawback” initiated last year on fuel taxes to pay holders of commonwealth guaranteed obligations. Standard & Poor’s said in a report last month that Puerto Rico will make its July 1 debt service payments of $220.7 million on highway securities by tapping reserve funds. It might not have enough stored away to pay in January, the ratings company said at the time. Read more.
To establish an Oversight Board to assist the Government of Puerto Rico, including instrumentalities, in managing its public finances, and for other purposes.
Democratic presidential candidate Sen. Bernie Sanders (I-Vt.) said yesterday that the Federal Reserve should use its authority to extend aid to Puerto Rico to help the island with its $70 billion debt crisis, MorningConsult.com reported. Sanders called for the Fed to use authority it has under Section 13.3 of the Federal Reserve Act to give aid to entities outside the banking system in “unusual and exigent circumstances.” He compared possible Fed assistance to the central bank’s role in extending aid to large banks during the 2008 financial crisis. “If the Fed could bail out Wall Street, it can help the three-and-a-half million American citizens of Puerto Rico,” he said. He also criticized the emerging plan in Congress to give Puerto Rico debt restructuring authority by establishing a fiscal oversight board. “The Republican plan in Congress to establish an unelected oversight board that would be given the power to slash pensions, cut education and healthcare and increase taxes on working families is not the answer,” Sanders (I-Vt.) said. Read more.
U.S. House of Representatives Speaker Paul Ryan said on Friday that an updated bill dealing with Puerto Rico's debt will be introduced in "the coming days,” Reuters reported. "Right now, we are working with the Natural Resources committee, the administration, and our Democratic counterparts to iron out the final constitutional and legal questions surrounding the legislation," Ryan said. "Let me be clear: There will be no taxpayer bailout of Puerto Rico,” he added. Read more.
House Democrats are taking issue with potential provisions in a forthcoming Puerto Rico bill that could impact debt restructuring, the island’s minimum wage and ownership of land on the Caribbean island Vieques, according to Minority Leader Nancy Pelosi (D-Calif.), MorningConsult.com reported yesterday. “It’s an issue of what will work in terms of restructuring, how the makeup and the scope of the board is in furtherance of having the restructuring work,” said Pelosi. “Issues that relate to language about pensions, and minimum wage, et cetera are also part of that discussion. And the Vieques issue is there, but that doesn’t relate to the restructuring.” Separately, on a call with reporters, Rep. Raul Grijalva of Arizona, the top Democrat on the House Natural Resources Committee, said that Democrats haven’t been presented with a copy of the new legislation. Democrats have raised concerns about provisions in the current Puerto Rico bill, H.R. 4900, that would give the commonwealth’s government the authority to lower the minimum wage to as low as $4.25 an hour. They’ve also criticized a provision in that measure that would authorize the transfer of federal land on Vieques, and they’re pushing for new language that they say would avoid leading to commercial exploitation of the land. Read more.
The Supreme Court is due to rule by the end of June on the validity of a Puerto Rico law that would allow the U.S. territory to restructure the chunk of its debt issued by public agencies, more than $20 billion, in a bankruptcy-like process, Reuters reported today. The court fight is playing out as the Republican-led Congress grapples with legislation that lawmakers hope will prevent the need for a bailout of the territory of 3.5 million U.S. citizens. The legislation is expected to put Puerto Rico's finances under federal oversight through a control board and let the Caribbean island cut debt through a bankruptcy-like restructuring process. It would preempt the Recovery Act, the local restructuring law that was thrown out in U.S. courts before Puerto Rico asked the Supreme Court to reinstate it. Puerto Rico is not covered by federal bankruptcy laws that U.S. cities and public agencies can use, so some U.S. lawmakers view legislation as the only way to keep the debt crisis from worsening. But drafting the bill has been laborious. Some bondholders, including U.S. hedge funds, and Republicans are seeking to ensure that creditors get paid as much as possible of what they are owed. Congressional Democrats, the Obama administration and Puerto Rico itself are trying to prevent austerity that could threaten services on the island. An early draft of the bill by the House of Representatives Natural Resources Committee never made it to a vote, and the panel on Wednesday delayed unveiling the latest draft, citing the need for "a number of refinements." Some Republicans oppose inclusion of a "cram-down" provision that would let Puerto Rico impose debt cuts on creditors who do not agree to them. If the Supreme Court reinstates the Recovery Act, the congressional legislation might not seem so bad to creditors in comparison, said ABI Resident Scholar Prof. Melissa Jacoby of the University of North Carolina School of Law. "It might alter the lobbying landscape," Jacoby said. Puerto Rico has already defaulted on some of its debt, most recently the bulk of a $422 million payment owed by its primary government bank. Read more.
Experts talk about the next steps for Puerto Rico to resolve its financial distress today at ABI’s New York City Bankruptcy Conference. Walk-up registration available!
Even as a relief bill is expected to be introduced in Congress today, if it passes and works, Puerto Rico will not be able to pull out of its financial tailspin for years, according to a commentary in today’s New York Times. Across America, dozens of cities, counties and states may be heading down the same financial rabbit hole. Illinois, New Jersey, Philadelphia, St. Louis and Jacksonville, Fla., to name just a few, are all facing their own slowly unspooling financial disasters. The blame lies with what economists call “deferred costs.” Generous pension promises made decades ago, without enough funding, are now coming due as baby boomers retire. Bonds issued in the distant past to build bridges, highways and other projects also must be paid — even as the projects themselves could by now use expensive makeovers, according to the commentary. “New York City has $85 billion of retiree health obligations all by itself,” said Richard Ravitch, the former lieutenant governor of New York State and an informal adviser to Detroit’s financial control board. He helped New York City resolve its financial crisis in 1975; today he worries about possible replays across America. “We’ve promised more than we can pay without confiscatory levels of taxation,” Ravitch said. “Puerto Rico is just, arithmetically, the most egregious example of borrowing to cover up deficits.” 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 tomorrow will examine potential remedies. Click here to register.
What do experts think of the mounting crises in public and private pensions? Watch the latest “Eye on Bankruptcy” segment that was filmed live at ABI’s Annual Spring Meeting in April.
Puerto Rico is pushing for its water utility to borrow hundreds of millions of dollars to avoid a July bond default, seeking to overcome investors’ skepticism as the island’s fiscal crisis pushes it to skip payments on a growing share of its $70 billion of debt, Bloomberg News reported yesterday. The commonwealth’s lawmakers are working to reach a compromise this week on legislation that would create a new public corporation to sell securities for the Puerto Rico Aqueduct and Sewer Authority, known as PRASA. The debt would be repaid with a charge on customers’ bills steered straight to the new agency, providing some measure of security to bondholders by putting it beyond the utility’s reach. “Once we get this bill done and it becomes law, I’m confident that the market will see it as a good way to invest and lend money to PRASA,” said Senator Ramon Luis Nieves, who chairs that chamber’s committee on energy affairs and water resources and is working on the bill. The legislation is an effort to revive a sale that was scrapped after Puerto Rico in August defaulted on some bonds for the first time since it became a U.S. territory more than a century ago. The commonwealth has since failed to make full payments on other securities and has given Governor Alejandro García Padilla the authority to declare a moratorium on a vast swath of its debt, including PRASA’s. Read more.
In related news, a new version of a congressional bill to help Puerto Rico address its $70 billion debt crisis may advance next week toward floor action, according to Rep. Rob Bishop of Utah. The new draft won’t have significant changes and the basic concepts of the bill, to get Puerto Rico out of its fiscal crisis, are the same, Bishop said yesterday during an interview at Bloomberg News. Bishop serves as chairman of the House Natural Resources Committee, which has been tasked with crafting the Puerto Rico measure. It’s feasible that the bill could reach President Barack Obama’s desk by July 1, Bishop said. The bill would create a federal control board to approve Puerto Rico’s spending plans and oversee any debt restructurings. The measure would also provide a framework for Puerto Rico to lower its $70 billion debt load as the island doesn’t have access to the municipal bankruptcy laws, as Detroit did. Read more.
What are the next steps for Puerto Rico to resolve its financial distress? A panel of experts at Thursday’s New York City Bankruptcy Conference will examine potential remedies. Click here to register.
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.
