Congress might actually do something about Puerto Rico’s debt crisis next year

23 Dec 2015 | Author: | No comments yet »

Creditors give Puerto Rico’s electric power utility a brief extension on debt deadline.

SAN JUAN, Puerto Rico — Puerto Rico’s electric utility says it has been given a brief reprieve to pursue an agreement with bond insurers on a debt restructuring deal that it reached last month with its bondholders and bank lenders. With a potential huge default on bonds looming and a new bankruptcy law for Puerto Rico to be weighed by Congress in the new year, bondholders have agreed to keep trying to reach a deal to restructure as much as an eighth of the island’s $72 billion debt. Over weak coffee in a conference room in Midtown Manhattan last year, a half-dozen Puerto Rican officials exhaled: Their cash-starved island had persuaded some of the country’s biggest hedge funds to lend them more than $3 billion to keep the government afloat. Insurers agreed to bolster the security of the new bonds, which would make it more likely that the bonds would be rated investment grade, according to a person familiar with the situation. Stocks of bond insurers Assured Guaranty (AGO) and MBIA (MBI) as well as uninsured bonds were trading higher as the deal was seen as favorable for bondholders.

An agreement to pursue the restructuring plan was set to expire on Thursday, but the parties renewed it that evening, as they have done a number of times previously. The agreement hasn’t been approved by the power authority’s board and would only take effect after Puerto Rico’s lawmakers reconvene and pass legislation to allow the deal. Alejandro Garcia Padilla and other officials have said the authority’s 18 months of negotiations with creditors show why Congress should grant the U.S. territory’s public agencies access to Chapter 9 federal bankruptcy reorganization. The utility is the first of about a dozen entities that officials say need to restructure their debts. “By not acting now, Congress has opted to allow a U.S. commonwealth not pay its obligations and create chaos.

The commonwealth is seeking to strike deals with investors to restructure about $70 billion of debt, which includes Prepa debt, without the bankruptcy protections allowed U.S. municipal entities. Puerto Rico’s cash has dwindled, debate has flared in Washington over whether and how to help the island, and the governor of Puerto Rico, Alejandro García Padilla, warned that the island was likely to default, either in January or May. Chapter 9 would allow public corporations like the power authority to undergo a bankruptcy court-supervised restructuring process, rather than the voluntary debt negotiations taking place with creditors. In addition, the United States Supreme Court unexpectedly said it would consider Puerto Rico’s case for enacting its own restructuring law, because it is ineligible for Chapter 9 bankruptcy, which cities like Detroit and Stockton, Calif., have used recently to shed debt. Senate Republicans have introduced a bill that would create a powerful federal control board to supervise Puerto Rico’s finances while supplying up to $3 billion in relief, and U.S.

Persuading the Supreme Court to reconsider has been widely seen as a surprise victory for the struggling island, and a setback for creditors, even though any ruling is still months off. The Treasury Department has been pressing Congress to give Puerto Rico access to bankruptcy reorganization, or something similar, so that it can reduce its debts in an orderly fashion.

House Speaker Paul Ryan said Wednesday he had instructed the relevant committees to find a “responsible solution” by the end of March. “Any solution must include both independent oversight and an orderly process to restructure the Commonwealth’s debt,” U.S. Any such power “should sunset within a short period of time after the restructuring is accomplished,” Richard Ravitch, the former lieutenant governor of New York State, said in written responses to questions from Senator Orrin G. Hatch, Republican of Utah and a member of the Judiciary Committee, which has been working on a possible restructuring framework. “This would ensure that no future government would borrow as promiscuously and then be able to take advantage of the bankruptcy laws,” said Mr.

Donahue, the AlixPartners managing director who is Prepa’s chief restructuring officer, said in an interview earlier this week. “Everybody does want a deal. Supreme Court has also agreed to consider whether Puerto Rico should be allowed to write laws permitting public agencies such as Prepa to restructure debts.

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