For years, Puerto Rico borrowed money by issuing municipal bonds, using the funds to compensate for declining government revenue and prevent deep cuts in services and layoffs of public workers. It easily found investors.þþBut Puerto Rico can no longer afford what it owes. The island is reeling under more than $70 billion of debt, and officials there have warned about its inability to pay back investors while maintaining essential services for residents such as health care and schools.þþThis is what’s happening and how the island got here:þþWhat’s the latest?þAfter weeks of negotiations, House Republicans have drawn a roadmap to lead Puerto Rico out of its financial quagmire, with support from the Obama administration.þþA bill introduced shortly before midnight on Wednesday would put Puerto Rico’s fiscal affairs under direct federal control and establish a legal framework for reducing its debt. The rules would be similar to a type of municipal bankruptcy known as Chapter 9, but with differences intended to reassure those creditors who believe Chapter 9 is stacked against them.þþIf enacted as is, the bill would also pre-empt action by the United States Supreme Court, which has been called upon to interpret the laws governing Puerto Rico, a territory of the United States.þþThe bill would put Puerto Rico’s financial affairs under a powerful federal control board, despite warnings from elected officials in Puerto Rico that heavy-handed oversight from Washington would have unacceptable colonial connotations.þþThe island skipped a $399 million debt payment due May 2, its biggest default yet. A much bigger debt payment, nearly $2 billion, is scheduled for July 1.þþWhat’s being done about fixing the problem?þFor months, the Obama administration has pressed Congress to put together a solution for Puerto Rico, and House Speaker Paul Ryan instructed lawmakers to firm up a rescue package by the end of March. A first draft proposal lacked support.þþPuerto Rico’s Gov. Alejandro García Padilla enacted a law in early April that allows him to block debt payments and preserve the island’s dwindling cash. He has already invoked that power.þþWe have repeatedly traveled to Washington to convey the urgency of the situation. So far, no action has been taken. þGov. Alejandro García PadillaþThe House bill, if enacted, would trump that law.þþAt the same time, Puerto Rico’s Government Development Bank, one of the island’s biggest debtors, has been negotiating with some of its bondholders to pay them at less than 100 cents on the dollar.þþFights brewing among various types of bond investors could greatly complicate things if Congress does not act in time. Some of Puerto Rico’s bonds have guarantees or constitutional priority, and those investors are pushing for full payment. Other investors are pushing for early settlements, hoping they can recover more in private negotiations than a court-ordered one.þþThe rescue plan’s restructuring provisions would also apply to Guam, American Samoa, the Northern Mariana Islands and the U.S. Virgin Islands, if necessary in the future.
Source: NY Times
