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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. 

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. 

Puerto Rico, already facing multiple battles over billions of dollars in debt, was in yet another courtroom yesterday, the New York Times reported today, locked in a legal dispute with its biggest sales-tax collector and its biggest private employer: Walmart. This time the dispute is not about bond payments, but taxes: the taxes that Puerto Rico is charging Walmart for the goods it brings from its distributors off the island — including in the U.S. — to sell in its stores in Puerto Rico. In May, the island raised the special tax on those goods to 6.5 percent from 2 percent for the largest retailers. Walmart filed suit in December, saying that the increase left it with an effective income tax of 91.5 percent. The tax “sentences Walmart in Puerto Rico to death, for a crime there is no evidence it committed,” Walmart’s lawyer, Neal S. Manne, told the court. Read more. 

In related news, Republican presidential candidate Chris Christie said that Barack Obama’s administration has overlooked Puerto Rico’s debt crisis and that he would be willing to assist in return for more oversight over the island, Bloomberg News reported yesterday. Christie, New Jersey’s two-term governor, said that he would support some form of assistance for the territory of 3.5 million people if he were president, but cautioned it wouldn’t come without “tough love.” Obama in October pressed Congress to give Puerto Rico bankruptcy powers not now available to American territories in order to reduce its $70 billion debt load. He also proposed a federal oversight board to help balance its budgets and manage borrowing. The president has called for increasing health care funding for Puerto Rico and extending tax credits to the poor. “I would be willing to help the people of Puerto Rico, but in return I would have to have strict control over their budgets going forward,” Christie said. Read more. 

Experts gather in San Juan today to discuss Puerto Rico's economic distress and other important cross-border insolvency topics at ABI's Caribbean Insolvency Symposium. Click here for more information 

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 financial troubles are so complex and far-reaching that bankruptcy alone will not solve them, and might even make them worse, experts on financial distress told lawmakers yesterday, the New York Times reported today. Instead, witnesses who testified before the House Agriculture Subcommittee on Indian, Insular and Alaska Native Affairs yesterday recommended appointment of a federal control board, saying that it would have a better chance of resolving Puerto Rico’s debt in the short term and preventing the island from falling into debt again in the future. As evidence, witnesses pointed to Detroit’s recent experience with municipal bankruptcy, the largest so far in American history. Bankruptcy proceedings helped Detroit reduce its debts, they said, but did not leave the city with a recovery plan. By contrast, some pointed to the financial crisis that gripped Washington in the late 1990s. The district never went bankrupt but was placed under supervision of a financial control board and now enjoys a double-A bond rating. “In my view, the time is now for Congress to create an authority that would have as its goals both achieving financial stability and a balanced budget for the island,” said Anthony A. Williams, who served as Washington’s chief financial officer during the period of federal supervision. Read more. 

Experts gather tomorrow in San Juan to discuss Puerto Rico's economic distress and other important cross-border insolvency topics at ABI's Caribbean Insolvency Symposium. Click here to register! 

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

Puerto Rico is seeking to cut its debt load by 46 percent in its first offer to investors, a proposal that may face revisions as bondholders fight to get the most repayment, Bloomberg News reported yesterday. The commonwealth unveiled its plan yesterday to reduce the island’s obligations and help restart an economy that’s failed to grow in the past decade. The proposal for a voluntary exchange would cut the island’s debt to $26.5 billion from $49.2 billion, put off all interest payments until the 2018 fiscal year and affect even general-obligation bonds, which have the strongest repayment pledge, according to a restructuring proposal posted on the Government Development Bank website. The plan may pit the commonwealth’s investor groups against each other. In the proposal, general-obligation bonds get more money back than sales-tax debt, called Cofinas by their Spanish acronym. Cofina investors may take issue with that, said Lyle Fitterer, head of tax-exempt debt in Menomonee Falls, Wis., at Wells Capital Management, which oversees $39 billion of municipal bonds, including Puerto Rico securities. The island, which doesn’t have access to municipal bankruptcy, may need a legal framework to bring all of the island’s creditors together, Fitterer said. Read more. 

In related news, a New York Times analysis today reported that the Puerto Rico Electric Power Authority (PREPA) has been giving free power to all 78 of Puerto Rico’s municipalities, to many of its government-owned enterprises, even to some for-profit businesses — although not to its citizens. It has done so for decades, even as it has sunk deeper and deeper in debt, borrowing billions just to stay afloat. Now, however, the island’s government is running out of cash, facing a total debt of $72 billion and already defaulting on some bonds — and an effort is underway to limit the free electricity, which is estimated to cost the power authority hundreds of millions of dollars. But like many financial arrangements on the island, the free electricity is so tightly woven into the fabric of society that unwinding it would have vast ramifications and, some say, only worsen the plight of the people who live here. “If the towns don’t get free energy, they’re going to have to pay for it by increasing their property taxes or something, so the people will end up paying,” said Eduardo Bhatia, the president of the Puerto Rico Senate. Residents of the island are already upset about a recent sales tax increase to 11 percent, from 7 percent, and a property tax increase now would cause an outcry. The last assessment was in 1958. Read more. 

Additionally, the House Natural Resources Subcommittee on Indian, Insular and Alaska Native Affairs will hold a hearing today at 11 a.m. ET titled “The Need for the Establishment of a Puerto Rico Financial Stability and Economic Growth Authority.” To review the witness list and background for today’s hearing, please click here. 

Experts gather later this week in San Juan to discuss Puerto Rico's economic distress and other important cross-border insolvency topics at ABI's Caribbean Insolvency Symposium. Click here to register! 

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