Future of Puerto Rico bankruptcy bill uncertain in Congress

WASHINGTON — A bill to give Puerto Rico’s ailing public utilities a way to restructure debt under the U.S. bankruptcy code drew skepticism from congressional Republicans but support from Democrats, who said it would relieve the island’s problems.

The Republican-controlled Judiciary subcommittee on regulatory reform of the House of Representatives on Thursday held a hearing on the bill, proposed by Puerto Rico’s nonvoting congressional delegate, Democrat Pedro Pierluisi. The legislation would allow the territory’s government-owned corporations to file under Chapter 9 of the bankruptcy code.

Puerto Rico’s electric power authority, PREPA, is struggling with debt of about $9 billion.

Subcommittee Chairman Tom Marino of Pennsylvania and Rep. Darrel Issa of California, both Republicans, said they were undecided on whether to support the bill in its current form.

“Is it wise to provide this [Chapter 9], even prospectively, without a real plan presented from the Commonwealth of Puerto Rico going forward for how they’re going to work their way out of an ongoing and systemic pattern?” Issa said at the hearing.

But Democrats said the legislation would help Puerto Rico’s utilities when they run out of options.

“This legislation is a wise use of the law — a step we can take now to avoid a bailout or a financial crisis later,” said Democratic Rep. Luis Gutierrez of Illinois, who sits on the Judiciary Committee itself but not the subcommittee.

Democrat Rep. Hank Johnson of Georgia, a member of the subcommittee, said it would provide a vital way out for distressed public utilities and “close the gap in the bankruptcy code that excludes Puerto Rico.”

Bondholders are split. Thomas Mayer, a partner at Kramer Levin representing Franklin Municipal Bond Group and OppenheimerFunds Inc.’s $1.6 billion investment in electric utility PREPA bonds, said the change would cause more harm than good.

Morrison & Foerster partner Anthony Princi, who represents 32 institutions holding more than $4.2 billion in Puerto Rico debt, wrote that it would provide confidence to the municipal markets.

Puerto Rico delegate Pierluisi has argued the bill would be in the best interests of all stakeholders.

“So far as I can tell, the opposition to this bill comes from a very small subset of investment firms,” Pierluisi said.

Discussion about the bill was reignited when a federal court struck down a local law granting agencies similar debt-restructuring authority

By Elvina Nawaguna and Megan Davies

Future of Puerto Rico bankruptcy bill uncertain in Congress

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