Congress Caught in the Middle on Puerto Rico

For months, Republicans in Congress have stalled proposals to prevent a financial collapse in Puerto Rico, which is staggering under $70 billion in debt. The latest delay? Conflicting demands from competing groups of bondholders, who are lining up on opposite sides of a bill that would let the island territory write off some of its burden. Hedge funds and other investors who own about $5 billion of Puerto Rico’s general obligation bonds, which are guaranteed under the island’s constitution, are pushing for revisions to the proposed measure. Firms that own $1.6 billion in securities backed by sales taxes favor the legislation, which includes provisions for an independent oversight panel that would help keep Puerto Rico’s economy afloat.

The House Committee on Natural Resources, which has been tasked by House Speaker Paul Ryan with working out a compromise, abruptly canceled an April 14 vote on the draft legislation so it could be revised. The House Freedom Caucus, a group of about three dozen conservative legislators, huddled on April 18 to discuss their stance. According to a participant who spoke on the condition he not be identified, the group wants assurances that the bill will treat different classes of creditors fairly. “The conflicting messages that lawmakers are getting from investors is making them less likely to want to be seen picking one creditor group over another,” says Daniel Hanson, an analyst at Height Securities, a Washington-based broker-dealer. “There are disagreements among House members over which credits are strongest and what’s the right way to proceed.”