Puerto Rico Governor Pushes Back Against U.S. Control Board

Updated on
  • Oversight panel would manage debt restructuring and budgets
  • Commonwealth is seeking to reduce $70 billion debt load

Puerto Rico Governor Alejandro Garcia Padilla welcomed proposed federal legislation that would help the island restructure its $70 billion of debt, while saying it imposes too much U.S. control over the commonwealth.

A draft measure by House Republicans that has circulated on Capitol Hill would give a federal control board the legal authority to oversee a reduction of the island’s debts, instead of entrusting that power to local officials. The board would have the ability to cut the budget if Puerto Rico lawmakers are unable to erase the chronic deficits that are at the root of the fiscal crisis -- a step that would take key decisions away from the island’s legislature and governor.

“The section on restructuring the debt is positive, but the price is too high,” Garcia Padilla told reporters Monday in San Juan.

Puerto Rico and its agencies have run up $70 billion in debt from years of borrowing to pay its bills. Garcia Padilla’s administration has been negotiating with creditors in an effort to persuade them to accept less than they’re owed because it has no way to reduce its debt in court. He’s urged Congress to give the commonwealth restructuring powers to help corral investors who are reluctant to accept a loss.

The draft bill from the House Natural Resources Committee is the most comprehensive fix yet advanced by Congressional Republicans to help pull Puerto Rico from a crisis that’s been building since June, when Garcia Padilla said its debts aren’t payable.

The committee plans to hold a hearing on the bill on April 13. While Senate Democrats have pushed their own proposals, the House’s measure has a high likelihood of becoming law, said Daniel Hanson, an analyst at Height Securities, a Washington-based broker dealer. Republicans control both houses of Congress.

“The bill has the right pieces,” Hanson said, referring to the legislation’s ability to repair Puerto Rico’s finances. “It’s the right approach to moving forward.”

Still, the draft bill doesn’t resolve how the government’s various creditors will fare under a restructuring, he said. Puerto Rico’s debt was sold by different issuers and backed by separate revenue streams or legal safeguards.

“It doesn’t seem as though this legislation properly addresses all the different legal facets that are going to emerge,” Hanson said.

Prices on Puerto Rico securities were little changed Tuesday. General obligations with an 8 percent coupon and maturing in 2035 traded at an average price of 70.4 cents on the dollar, down from 71.2 cents on Thursday. The average yield was 12 percent.

Garcia Padilla reiterated Monday that the island is unable to make a $422 million Government Development Bank bond payment due May 1 unless it reaches an agreement with investors. It would follow smaller defaults by certain island agencies. Puerto Rico and its agencies face an additional $2 billion debt-service payment July 1.