Puerto Rico Bankruptcy Bill Chances Fading, MMA Analyst Says

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A bill that would let Puerto Rico’s agencies file for Chapter 9 bankruptcy stands scant chance in Congress, according to Robert Donahue, a research analyst at Municipal Market Analytics Inc.

Opposition to the measure sponsored by the commonwealth’s non-voting representative is strong among investors, Donahue said in a telephone interview Wednesday. Opponents, including Franklin Resources Inc. and OppenheimerFunds Inc., are far more vocal than supporters, he said.

“The opponents to extending the Chapter 9 have been extremely aggressive in lobbying members of Congress against it,” he said. “There is a small and growing lobby in favor of Chapter 9 authorization, but to date, the two mutual funds have outspent them.”

On the prospects of any bill to allow Puerto Rico to file for bankruptcy, Michael Steel, a spokesman for House Speaker John Boehner of Ohio, deferred comment to the Judiciary Committee and its chairman, Bob Goodlatte of Virginia

There, a House Judiciary aide responded that the merits of such legislation are still being weighed, and that it was too early to comment on next steps.

Junk-rated Puerto Rico and its agencies have $73 billion of debt. The island’s economy has struggled to grow since 2006, casting doubt on the commonwealth’s ability to repay its obligations. The Electric Power Authority is negotiating with creditors to reduce its $8.6 billion of debt and get more time to repay loans.

No Authority

Puerto Rico’s non-voting representative in the U.S. Congress, Pedro Pierluisi, concluded that the Federal Reserve has no authority to purchase or guarantee bonds issued by Puerto Rico, Carmen Feliciano, his chief of staff, said in an e-mail Wednesday.

“Representative Pierluisi is focused on advancing his bill through the legislative process, since he believes this is the best way to help Puerto Rico on the federal level,” Feliciano said. “To date, we have seen no indication that Treasury intends to take any extraordinary measures to assist Puerto Rico.”

Dan Watson, a Treasury spokesman, said: “Federal policy experts are sharing their expertise with the Puerto Rican officials that are leading the Commonwealth’s economic policies, but these efforts should not be interpreted as any kind of federal intervention.”

Tax-Exempt Debt

Like U.S. states, Puerto Rico, a self-governing island of 3.5 million, can’t file for bankruptcy. Because most of the Commonwealth’s debt is tax-exempt nationwide, it’s held by mutual funds and individual investors.

Representative John Conyers of Michigan, the highest-ranking Democrat on the House Judiciary Committee, and Hank Johnson, a top Democrat on the subcommittee on regulatory reform, expressed support for the legislation during a Feb. 26 hearing.

Three of the four witnesses called before the Republican-dominated panel supported the bill.

“Use of Chapter 9 by any of Puerto Rico’s public corporations will cause more harm than good, for both millions of Americans who invested in Puerto Rico bonds and for the Commonwealth,” testified Thomas Moers Mayer, partner and co-chair of the corporate restructuring and bankruptcy group at Kramer Levin Naftalis & Frankel LLP in New York. Mayer represents Franklin Resources and OppenheimerFunds.

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