Legislation allowing Puerto Rico to restructure more than $70 billion in bondholder debt was introduced in the House of Representatives late Wednesday.
A key feature of the proposal, the Puerto Rico Oversight, Management, and Economic Stability Act, is creation of a fiscal oversight board with exclusive authority to enact and enforce fiscal plans and reforms aimed at improving access to capital markets.
For bondholders, the act would promote voluntary restructuring agreements and stipulate that any adjustments of debts must be “in the best interests of creditors.”
It also calls for a stay on litigation, and a firewall between constitutionally protected creditors and the $2 billion Puerto Rico Employees' Retirement System, Hato Rey. Between bonds and unfunded pension liabilities, Puerto Rico has amassed $118 billion in debt, according to the House Natural Resources Committee, which has jurisdiction over U.S. territories.
Treasury Secretary Jacob Lew, who was been working with members of Congress to avert a fiscal crisis in Puerto Rico, said in a statement that the legislation “represents a fair, but tough bipartisan compromise.” Allowing the commonwealth to restructure all of its liabilities without bailouts for any creditors, plus independent fiscal oversight “will help put an end to Puerto Rico's debt crisis,” Mr. Lew said, adding that Congress “must stand firm and resist calls from financial interests to undermine this effort every step of the way.”
The proposal, which could be further refined in public meetings, incorporates “input from all stakeholders,” said Natural Resources Committee Chairman Rob Bishop, R-Utah, a sponsor along with Rep. Sean Duffy, R-Wis., and Rep. Jim Sensenbrenner, R-Wis.