Governor of Puerto Rico Warns of Looming Default Without Bankruptcy Plan
A man is reflected in a mirror while watching Puerto Rico Gov. Alejandro Garcia Padilla address the nation in a televised speech on Monday. Credit Alvin Baez/Reuters
The governor of Puerto Rico redoubled threats on Wednesday of a major bond default, as an effort to help the struggling commonwealth use bankruptcy to shed debt headed for defeat in Congress.
Gov. Alejandro García Padilla warned in a speech at the National Press Club in Washington that Puerto Rico would probably miss debt payments in January or May because its government had run out of cash.
“There is no money,” he said. “I don’t have a printing machine.”
The governor’s comments came as Congress omitted from a federal spending bill any measures to allow Puerto Rico to restructure its roughly $72 billion of debt in Federal Bankruptcy Court.
Mr. García Padilla and his Democratic Party allies in Washington have been pushing for months to allow the island to take shelter from its creditors through bankruptcy. Chapter 9 bankruptcy, which is available to cities, counties and other local governments on the mainland, specifically excludes Puerto Rico as well as states.
Many Republican leaders are opposed to giving Puerto Rico access to Chapter 9, in part because of concerns that the island would blaze a trail that severely troubled states might try to follow. The proposal was also vehemently opposed by bondholders, including hedge funds, that have bought billions of dollars of Puerto Rico’s debt, under the assurance that it could not be cut in bankruptcy.
The omnibus spending bill, hashed out by Republican and Democratic House leaders late Tuesday, offers one of the last chances this year for Congress to assist Puerto Rico. It is expected to be put to a final vote on Friday.
Supporters of bankruptcy authority for Puerto Rico vowed to keep fighting for such a measure, which requires congressional approval.
In a statement, Speaker Paul D. Ryan said that “while we could not agree to including precedent-setting changes to bankruptcy law in this omnibus spending bill,” he had instructed various House committees to work with Puerto Rico to come up with a “responsible solution” by the end of the first quarter of 2016.
The Treasury Department has been among those pushing for Congress to create an orderly legal process for Puerto Rico to restructure its debts, rather than leaving it up to a free-for-all among creditors.
Some analysts fear that a major default could result in just such a scramble, as creditors file a series of lawsuits seeking to protect their claims to the island’s increasingly scarce cash.
The Puerto Rico governor has previously raised the specter of default, saying in June that the island’s debts were “not payable.” On Wednesday, he did not specify whether Puerto Rico might default on all or only a portion of the debt coming due on the first of the year.
Mr. García Padilla said it was becoming increasingly difficult to make debt payments while also providing essential government services.
It will “probably be on Jan. 1 that I will not have money to do both things,” he said. “And if I have to choose between Puerto Ricans and creditors, I will choose Puerto Ricans. There is no question.”
Puerto Rico has already defaulted on a small amount of its debt — skipping a $58 million “moral obligation bond” payment last August — but the Jan. 1 payments are seen as an important test of whether Mr. García Padilla and his advisers are willing to default on general obligation bonds. That type of debt has historically been marketed as virtually default-proof, and Puerto Rico’s general obligation bonds are guaranteed by its Constitution.
On Jan. 1, Puerto Rico owes bond payments of as much as $902 million, according to the Center for a New Economy, a nonpartisan research institute in San Juan.
About $332 million of that bond payment is for general obligation bonds. Other large payments are due on the same day from the public corporations that operate the island’s water, electricity and highway systems, among others.
The omnibus spending bill detailed some additional assistance for Puerto Rico, though critics said those measures would have minimal impact on the island’s severe cash shortage. One provision would increase Medicare payments to Puerto Rico’s doctors and hospitals by about $900 million.
The bill also authorizes the Treasury to provide “technical assistance,” like helping the Puerto Rico government with its budgeting, forecasting, cash management, information technology and tax collection — enhancing the Treasury’s current engagement.
Senator Orrin Hatch, the Utah Republican who is chairman of the Senate Finance Committee, said he welcomed further assistance from the Treasury.
“We can now begin the process of improving basic bookkeeping in the territory and end the opacity and lack of transparency in their finances,” he said in a statement on Wednesday. Republican senators on committees with jurisdiction over Puerto Rico have complained that the island has not provided enough information to warrant anything like a cash bailout.
“Providing blank checks without oversight or fiscal responsibility is not my preferred approach,” Mr. Hatch said.
“Congress missed an opportunity to do the right thing,” Mr. García Padilla said on Wednesday. “Hedge funds proved more persuasive over Congress than the well-being of 3.5 million American citizens living in Puerto Rico.”
Article from:- http://www.nytimes.com