Treasury Urges Action on Puerto Rico Before Court Battle Ensues

  • Territory has $2 billion in debt payments due Friday
  • Stay on litigation must be enacted before deadline, Lew says

U.S. Treasury Secretary Jacob J. Lew is pleading with Congress to pass legislation to save Puerto Rico before creditors head to the courts to force debt payments.

Four days before the territory faces a deadline for $2 billion in bond payments, Lew urged Senate Majority Leader Mitch McConnell to approve a measure that would enact a stay on litigation before the July 1 deadline.

If a bill isn’t passed by Friday and creditor lawsuits are successful, a judge could order Puerto Rico to pay creditors instead of paying for health or public-safety services, Lew said in a letter to McConnell on Monday. “Even a retroactive stay on litigation passed by Congress a few days later would not reverse such a court order,” he wrote.

Puerto Rico Governor Alejandro Garcia Padilla reiterated last week that the commonwealth will default on its general obligations even if he halted services on the island. He came to Washington last week to lobby for congressional approval of a bill that would set up a framework for the commonwealth to restructure its $70 billion in debt. The Senate is supposed to take up the measure this week. The House passed the bill, which also has the support of the Obama administration.

Legislative Shield

The legislation would shield the commonwealth from lawsuits that were filed as far back as December and future legal claims until February 2017. That would provide time for an oversight board to start its work.

Puerto Rico owes $805 million on its general obligations, which the island’s constitution stipulates must be paid before other expenses, on July 1. Including its agencies, the island faces a $2 billion principal and interest payment. Even limiting government operations won’t free up cash to pay creditors, the governor said.

Antonio Weiss, a counselor to Lew, said Thursday that there is no set-aside for Puerto Rico’s July 1 general obligations payment.

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