Legislation allowing Puerto Rico to restructure more than $70 billion in bondholder debt was approved by the House Thursday night by a 297-127 vote, with bipartisan support.
The Puerto Rico Oversight, Management and Economic Stability Act would create a fiscal oversight board with exclusive authority to enact and enforce fiscal plans and reforms, with the overall goal of improving access to capital markets. The board would promote voluntary restructuring agreements with bondholders, with additional authority to adjust debts “in the best interests of creditors.”
The legislation would halt any litigation over debts and create a firewall between constitutionally protected creditors and the $2 billion Puerto Rico Employees’ Retirement System, Hato Rey. The bill also calls on the new board to conduct an independent analysis of the pension system.
“It’s going to be an excellent solution to a very, very difficult problem,” said House Natural Resources Committee Chairman Rob Bishop, R-Utah, during floor debate. Mr. Bishop, whose committee has jurisdiction over U.S. territories, won approval of an amendment that assures funding for the oversight board and calls for board members to be appointed no later than Sept. 15.
The Senate has not yet scheduled action on the legislation, but some bond payments due July 1 are giving it a sense of urgency. The White House Office of Management and Budget said in a statement that while the legislation is not perfect, President Barack Obama will sign it. Without the bill’s restructuring mechanisms, “an escalating series of lawsuits between creditors and against Puerto Rico could ensue,” the White House warned. “Failing to act now will result in an economic and humanitarian crisis far beyond what Puerto Rico is already facing today.”