House panel delivers Puerto Rico crisis bill, debt looms

Reuters News
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Posted: May 19, 2016 9:34 AM

By Daniel Bases and Susan Heavey

WASHINGTON/NEW YORK (Reuters) - The U.S. House Natural Resources Committee released late on Wednesday a revised Puerto Rico fiscal crisis bill that leaves in place many of the original provisions, including an oversight board to direct how and when the island pays its bills.

Puerto Rico has already defaulted on some of its roughly $70 billion in debt while trying to cope with a staggering 45 percent poverty rate among its 3.5 million U.S. citizens.

A vote by the U.S. House of Representatives on the bill is now expected to take place in the first week of June, ahead of a looming $1.9 billion debt payment due on July 1.

In recent months, the debt crisis has threatened a deepening humanitarian crisis as hospitals close wards, social services decline and emigration saps more economic activity.

The bill sustains language that would allow Puerto Rico to cut repayments to creditors without their consent, known as a 'cramdown.'

"Tonight, we introduced legislation to responsibly address the crisis in Puerto Rico. The revised bill incorporates technical refinements and input from all stakeholders. Any future changes will be done in public committee meetings," HNRC Chairman Rob Bishop said in a statement.

The bill, formally known as the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA), seeks to return the island to solvency, rebuild a base for economic growth and maintain its ability to access capital markets in the future.

Choosing the members of the oversight board has been a sticking point in the talks leading up to the introduction of the bill.

"We will do our part to act expeditiously in providing President Obama with a list of qualified candidates for appointment to the oversight board," U.S. House Democratic Leader Nancy Pelosi said in a statement on Thursday.

Puerto Rico's creditors have lobbied Congress from different positions and one main concern over the bill was whether or not it would create new precedents for treating investors, potentially setting up future fights in the U.S. mainland that are far away from the island's current crisis.

"The bill, which creates a control board and allows for bankruptcy, is highly controversial and does not definitively protect any creditors. We believe the legislation is more positive for both GO and COFINA creditors than the legislation previously under review," wrote Heights Securities analyst Daniel Hanson.

GO, or General Obligation bonds are backed by the full faith and credit of the island and are senior to all debt, while COFINA debt is backed by sales tax revenues.

"But the lack of clarity in the drafting of the bill, especially around conflicting portions within the bill and especially with respect to pension liabilities, means that we are still heart burned over the looming restructuring fight," he said.