Puerto Rico Bankruptcy Bill Has Big Hurdles to Congress Passage

Several Republicans on the U.S. House Judiciary Committee said they’ve seen no signs of movement on legislation to aid Puerto Rico as the commonwealth moved a step closer to default.

“We’re talking about a lot of things,” Representative Raul Labrador of Idaho, a Judiciary Committee member viewed by colleagues as a key voice on the issue, said Thursday.

Pressed on whether the House will take action, Labrador responded, “What’s Puerto Rico going to do about making sure they have a path forward so it doesn’t happen again? That’s the question.”

Representative Doug Collins, a Georgia Republican, said he’s been given no signal of any commitment to advance legislation sponsored by Puerto Rico’s non-voting member of Congress, Pedro Pierluisi, that would let commonwealth agencies file for Chapter 9 bankruptcy protection.

House Judiciary Committee Chairman Bob Goodlatte, a Virginia Republican, declined to talk about the matter Thursday, and a growing number of analysts also said the legislation isn’t likely to win passage in Congress.

Lawmakers are facing pressure to act as Puerto Rico, with $72 billion of debt, inches closer to a default. The commonwealth said one of its agencies failed to transfer cash to a trustee to cover an Aug. 1 debt payment.

Collins met this week with Puerto Rico Governor Alejandro Javier García Padilla.

‘Frank Assessment’

“I’ve heard from all sides,” Collins said. “His was a very frank assessment of where they are -- and also just not to the point of just gloom and doom. He said here’s some of what we’re doing that’s positive.”

Another Judiciary Committee Republican, Representative Trent Franks of Arizona, said that because Puerto Rico currently doesn’t have the option of bankruptcy, “investors then came in and invested in the infrastructure of Puerto Rico based on the calculus they could not go bankrupt.”

“To now go back and apply retroactively bankruptcy laws -- and make them bail out poor government efforts in Puerto Rico -- is unjust,” Franks said. “It’s a hard thing to come up with the right solution.”

In the Senate, Democrats Chuck Schumer and Richard Blumenthal are seeking a Republican co-sponsor for their Puerto Rico bankruptcy measure, a companion to the House measure.

Still, Republicans hold the majority in both chambers in Congress and demonstrate no will to act on the legislation any time soon.

Long Odds

“Puerto Rico is still lacking much-needed Republican support for the bill, leaving it with long odds to completion,” Daniel Hanson, an analyst at Height Securities in Washington, said in a note to investors Thursday.

Goldman Sachs Group Inc. analysts said Congress is unlikely to take any meaningful action on Puerto Rico soon.

All sponsors of the Senate bill are Democrats, which contributes to “the growing perception that the Chapter 9 legislation is a partisan proposal, which further diminishes its prospects for success,” according to analysts at Beacon Policy Advisors LLC in Washington.

“We continue to have strong conviction that the Chapter 9 measure will not garner any material momentum in either chamber despite Puerto Rico’s increased lobbying efforts,” the analysts said.

Jaret Seiberg and Chris Krueger of Guggenheim Securities LLC said in a note Thursday that Republicans equate Chapter 9 bankruptcy “with a federal bailout of Puerto Rico’s excessive spending.”

‘Difficult to See’

“It is difficult to see what could cause Republicans to change this perspective,” they said in the note.

It also will be tough to attach the Chapter 9 proposal to other legislation, they said, given its controversial nature.

The Obama administration’s support of the bill may further discourage House Republicans from supporting it, Hanson said.

The U.S. Treasury Department said Wednesday that Puerto Ricans shouldn’t be left alone to manage its financial difficulties and that Congress should act quickly to advance the Chapter 9 legislation.

Puerto Rico’s bonds have traded at distressed levels for two years, suggesting that investors aren’t optimistic about a quick resolution.

General obligation debt maturing July 2035, and originally sold at 93 cents on the dollar, traded Thursday at an average price of 72.5 cents, down from 87.1 cents at the start of the year, data compiled by Bloomberg show. The average yield Thursday was 11.6 percent.

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