Puerto Rico's bankruptcy is the next step in its slow dance of default

Last Wednesday, the Financial Oversight and Management Board for Puerto Rico, created by Congress last year, formally requested the appointment of a federal judge to oversee bankruptcy proceedings for the indebted U.S. territory. The proceedings are authorized under Title III of the Puerto Rico Oversight, Management and Economic Stability Act of 2016 (PROMESA).

The well-choreographed move fits into the larger sequence of events intended in PROMESA. A 10-month stay on litigation against the government of Puerto Rico expired last Monday, precipitating a rush to the courthouse by creditors. But with initiation of the Title III bankruptcy proceedings, the stay goes back into place, putting the lawsuits on ice for another 120 days.

On Wednesday morning, one of the law’s architects, Antonio Weiss, called for Title III’s immediate use in remarks at the American Enterprise Institute. “The legislative intent,” Weiss argued, “was for there never to be a break in that stay.”

His encouragement was unnecessary. Puerto Rico Gov. Ricardo Rosselló had sent a request to initiate Title III a few minutes before Weiss took the stage. By the end of the day, the Oversight Board had approved and filed the governor’s request.

The 10-month stay improved Puerto Rico’s position at the bargaining table. It froze debt payments, so Puerto Rico could default on $2 billion since PROMESA was signed. The stay also allowed Puerto Rican voters time to choose a new governor to guide them through the process and to preemptively initiate reforms. Finally, the governor and the board agreed on a fiscal plan under cover of the stay.

The governor’s first draft of a fiscal plan called for repaying $1.2 billion of the approximately $3 billion per year owed to creditors. The Oversight Board rejected that plan as too optimistic, and they approved one that budgets $800 million a year in repayments. The plan also calls for a 10 percent cut to pension outlays by 2020.

PROMESA stipulates that the governor’s fiscal plan will guide bankruptcy proceedings. If Title III survives court challenges brought by bond insurers, then the size of the creditors’ pie is fixed, at least for the next several years, and the judge’s job is to dole out the scraps.

One section of PROMESA remains little used. Title VI provided for mostly-voluntary agreements between creditors and the government. But, as Rachel Greszler and I wrote in 2016, “collective action clauses are little comfort to a creditor facing an oversight board with a ‘fiscal plan’ of its own and the power to enforce it with the normal legal process sidelined.”

Among the creditors, the big winners are those who lent to the Puerto Rico Electric Power Authority (PREPA), the island’s public electric utility. PREPA was the canary in the coal mine, and its creditors organized themselves early and had the structure of a voluntary debt restructuring reached before PROMESA was drafted. Negotiations continued through April, resulting in an agreement (pending Oversight Board approval) that would give creditors 85 cents on the dollar.

The contrast between the PREPA deal — which was largely worked out under existing law prior to PROMESA — and the likely fate of creditors of other public utilities is instructive. Existing law provided tough but fair discipline for publicly owned corporations that did not pay their debts. They could go into receivership or even be privatized. In the case of the electric utility, reform means cutting off freeloading “customers,” stopping paychecks to absentee “workers,” and developing public-private partnerships for power generation.

In the Title III process, however, the other indebted utilities will get to default on more of their debt, and reform will be filtered through the political process. That serves the people of Puerto Rico poorly. Politics has meant patronage for the few and poor service for the many. While PROMESA averted lawsuits, it also averted some badly-needed reforms. As Gov. Rosselló himself said at The Heritage Foundation last week, “If you can find it in the Yellow Pages, you need to ask yourself if the government should be doing it.”

Under PROMESA, the governor will be fighting an uphill battle against entrenched political interests wherever he tries to shrink the bureaucracy or privatize a service that belongs in the Yellow Pages. Without PROMESA, creditors would have forced the issue.

Puerto Rico’s slow dance of default may continue for years as creditors battle the Oversight Board in local and federal courts. Bond markets will watch that fight with interest. Others, however, are already turning to the key player: Gov. Rosselló.

He can give Puerto Rico a chance of success by building on early reforms to labor markets and construction permitting and by delivering on his campaign promise to shrink the government’s 131 agencies down to a svelte 40. Introducing him last week, I said he had “the hardest job in politics.” It is not about to get easier.

Salim Furth is a research fellow specializing in macroeconomics at The Heritage Foundation’s Center for Data Analysis.

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The views expressed by contributors are their own and are not the views of The Hill.

BY SALIM FURTH
Puerto Rico's bankruptcy is the next step in its slow dance of default

Puerto Rico Government Looking At Different Ways To Reduce $120 Billion Debt

Puerto Rico Governor Ricardo Rosselló talks about the dire economic situation on the island. Last week it sought a special form of protection from creditors.

LAKSHMI SINGH, HOST:

Puerto Rico continues to struggle financially. The U.S. commonwealth owes creditors and pension funds more than $120 billion. And last week, the island officially began the process of seeking a special form of protection from creditors called Title 3 which is similar to declaring bankruptcy.

On Friday, President Donald Trump signed a federal government spending bill that included $295 million in Medicaid funding for Puerto Rico's struggling health care system. To talk more about how Puerto Rico's leaders are getting their fiscal house in order, we spoke with Governor Ricardo Rossello Nevares earlier this week.

And, Governor Rossello is a Democrat who took office in January. And I began by asking him about an announcement on Friday to close some 180 public schools affecting about 27,000 students.

RICARDO ROSSELLO NEVARES: I made no secret when I ran for office that we needed to reduce the size of government. We needed to be more effective. And, frankly, just talking about the schools that are closing, that was part of our proposal a couple of months back. It has nothing to do really with Title 3, and some of the strategies that will ensue we've already stated that they're going to happen.

You know, we need to reduce our expenditures in health care, although we don't want to reduce the access to it. We really need to reduce the expenditures in education and what we're doing is we're tackling the bureaucracy as opposed to education itself. And we want to invest on education. So those are decisions that we have to deal with it and - with strong leadership and a great team. I'm sure we're going to push past both for Puerto Rico.

SINGH: Now, governor, let's put this in context. We have a little over 46 percent of those living in Puerto Rico already struggling financially. They live below the poverty line. Critical sectors across the board have been hit hard. What are Puerto Ricans on the island likely to encounter on a basic level in the coming years as a result of this economic relief Puerto Rico's seeking?

ROSSELLO: Yes. So let me answer. I mean, that is the status quo, right? I've just recently arrived to be a governor, but we're changing that. Let me give you the example of tourism. Tourism took a big blow last year because of sort of overstated Zika problem in Puerto Rico. We've externalized the promotion of Puerto Rico from government so that we can have a - sort of group packages so that people can come to Puerto Rico and that it's more enticing. So we're being very aggressive on the tourist front.

On the health care front, we've identified, you know, some of the problems - long waits, people are not able to choose their providers, some of the insurers don't pay the doctors and the doctors leave. So what we've proposed is a new model whereby we're going to give more access to people, the long waits are not going to be happening, people will be able to choose both their providers and their health care coverage and this will enable us to actually reduce the cost of health care in Puerto Rico anywhere from 350 million to $500 million.

SINGH: Your administration recruited Avenue Strategies - right? - to help sort of attract new investment, new dollars, new business. And Avenue Strategies, for those who haven't heard of it, was co-founded by Corey Lewandowski who was on the Trump campaign.

And at the same time as this is happening, you still had President Trump tweeting recently Democrats want to prop up, you know, Puerto Rico, and they want to do that - bailout Puerto Rico with taxpayer dollars. I mean, I'm paraphrasing here. That's not a direct quote. Did the strategy of getting Avenue Strategies on board not work?

ROSSELLO: Judgment is still out. We will evaluate all of our people based on results. But certainly that, as you stated, that wasn't the most flattering of tweets. And I responded stating a few things. Number one - it was Trump's government in different levels has stipulated the need for Puerto Rico to have that funding for the Medicaid. It is not a bailout. It is actually just a path forward with the amount that we previously had which was significantly lower than any other state.

But that without it, it puts Puerto Rico in a significant bind. Now, mind you, this is all happening while we're reducing about $300 billion locally on health care. So it is sort of an added burden. The second component, I would say, is that health care and civil rights are not political issues. They should be essential rights for American citizens, and Puerto Ricans every side of the island are American citizens.

Lastly, the repercussions of allowing a health care system in Puerto Rico to collapse because it doesn't have its fair share of funding is that a lot of the U.S. citizens in Puerto Rico will move to the states now. You know this has been happening for a while, and let me tell you a little bit about the impact on health care alone. For every dollar that (unintelligible) spend on Puerto Rico for health care, that same citizen - the federal government and the state government will have to spend $4. So we feel that this needs to be stressed more to the administration stating that it is not a bailout, and it is just our fair share of money for health care.

SINGH: Puerto Rico Governor Ricardo Rossello. Governor, thank you so much for speaking with us.

ROSSELLO: Thank you. Thank you. Have a good day.

Copyright © 2017 NPR. All rights reserved. Visit our website terms of use and permissions pages at www.npr.org for further information.

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Puerto Rico Government Looking At Different Ways To Reduce $120 Billion Debt

5 facts about Puerto Rico's utter economic misery [ Video ]

The island has $74 billion in debt and another $50 billion in pension obligations on the books, making its case by far the largest municipal bankruptcy ever filed.

Court documents in support of Puerto Rico's bankruptcy paint a stark picture of what life is like and just how daunting the crisis is.

1. Fewer than 1 million people have jobs

The island has a population of about 3.5 million people -- and only about 1 million of them are employed. Obviously, not all of them are old enough to work or are looking for a job. But Puerto Rico's unemployment rate topped more than 12% in October and is more than double that of the mainland U.S.

The lack of jobs, particularly well-paying jobs, has also led to a population exodus in Puerto Rico. The island's population has dropped 10% since 2007.

"Negative economic growth has persisted for nine of the last ten years along with population diminution highlighted by exiting young doctors and other professionals," according to the bankruptcy documents.

CNNMoney has found that doctors are leaving Puerto Rico at a rate of one per day.

2. It owes $8 million to Microsoft

Court filings reveal the 20 creditors to which Puerto Rico owes the most money. The biggest debt, $12 billion, is owed to the Banco Popular de Puerto Rico, which is the trustee on the massive bonds the island has issued to help fund day-to-day operations.

But there are some other notable names on the list. Puerto Rico owes Microsoft more than $8 million for "services" the software company has provided. It also owes $3.2 million to Manpower, a talent recruitment agency.

None of the companies immediately responded to a request for comment about the debt.

3. Puerto Rico could face 'many' creditor lawsuits

The island faced at least 22 lawsuits from creditors at the time its bankruptcy documents were filed May 3.

Bankruptcy could help Puerto Rico remain protected from them.

A law called PROMESA (Spanish for "promise") originally safeguarded the island from the suits. While that law's protections expired May 1, the bankruptcy filing created a new shield for Puerto Rico.

If a federal judge declines to take the case, however, Puerto Rico could be thrown back into a legal shark tank.

4. Cutting Obamacare funds will make crisis 'exponentially' worse

One document in the filing says that Puerto Rican residents and creditors are "victims of a crisis situation exponentially getting worse."

The filing claims the island is set to lose hundreds of millions in funding from the Affordable Care Act next year. And it adds that losing the funding is projected to cost the commonwealth more than $16 billion over the next decade.

5. Pension programs are drying up

The three main retirement systems in Puerto Rico are expected to "deplete" all their assets between July and December, the documents say.

The commonwealth says it has already made extensive pension system reforms that will reduce future benefits, and that there are more reforms in the works. But the government and employers have been overpromising while not paying enough into the pension systems.

That leaves the system for public employees "severely underfunded," according to the court filings.

CNNMoney wants to hear from you: Do you live in Puerto Rico? Or did you grow up in Puerto Rico and then leave? What is your personal story from this crisis? Email: Heather.Long@cnn.com or Jackie.Wattles@cnn.com.

by Jackie Wattles
5 facts about Puerto Rico's utter economic misery

Puerto Rico to close 184 schools, save $7M amid crisis and growing exodus

Two days after filing for a form of bankruptcy protection for its monumental $70 billion debt, Puerto Rico announced Friday it is closing 184 public schools.

Education Department spokeswoman Yolanda Rosaly said approximately 27,000 students will be moved elsewhere starting the next school year.

She said the move is expected to save more than $7 million to the bankrupt island, which is immersed in a deep economic crisis.

Rosaly said more details will be provided soon. El Nuevo Dia, Puerto Rico's leading newspaper, posted the list of schools to be shut down.

It is the largest mass closure of schools announced in the history of the U.S. territory.

The island has seen its school enrollment drop 42 percent in the past three decades, mostly as a result of parents moving to the mainland U.S. in search of jobs and a more affordable life.

An additional 22 percent drop is expected in upcoming years, according to a study by the Boston Consulting Group.

Opponents of previous school closures say that transportation logistics and special education needs were not taken into account. 

Puerto Rico currently has a total of 1,292 public schools that serve 365,000 students.

The AP contributed to this report.

Puerto Rico to close 184 schools, save $7M amid crisis and growing exodus

Puerto Rico bondholders in for bumpy bankruptcy ride

If Puerto Rico’s record-setting bankruptcy follows the template of other municipal restructurings, general obligation bondholders may be in for a long ride, despite constitutional guarantees on their debt.

The federal financial oversight board for Puerto Rico on Wednesday pushed the U.S. commonwealth into a court-sanctioned restructuring process akin to U.S. bankruptcy, known as Title III. Similar filings for the island’s public agencies could be coming soon.

Puerto Rico will use the court processes to restructure much of its $70 billion debt load and $49 billion in pension liabilities. This dwarfs Detroit’s 2013 filing, which at $18 billion in bond and pension debt was until now the largest-ever U.S. municipal bankruptcy.

The island's constitution guarantees the debt of GO, or General Obligation, bondholders, while other debt, known as COFINA, is backed by revenue streams from tax proceeds.

But in past bankruptcies, that has not meant much.

In five of six recent public bankruptcies in which the debtor defaulted on bonds, pensioners walked away with full recovery, while bondholders took haircuts, according to data from Moody’s Investors Service. Among those settlements, Harrisburg, Pennsylvania, bondholders took a reduction in the value of their investments by an average of about 25 cents on the dollar, according to Moody's, while in Stockton, California, the haircut was 50 percent.

Even in Detroit, where pensioners suffered losses of about 18 percent, bondholders on average took home only 25 cents on the dollar, the Moody’s data shows.

“If the market hasn’t taken this dynamic into account by now, you can imagine they will after Puerto Rico, given its enormous scale,” said bankruptcy expert Drew Dawson, a professor at the University of Miami School of Law.

Among Puerto Rico creditors, GO and COFINA debt are viewed as the two safest bets for decent recoveries.


A person carries a Puerto Rican national flag during a protest against the government's austerity measures as Puerto Rico faces a deadline on Monday to restructure its $70 billion debt load or open itself up to lawsuits from creditors, in San Juan, Puerto Rico... REUTERS/Alvin Baez

GO holders seemed to have an advantage out of court, where constitutional debt is seen as sacrosanct. Puerto Rico offered a restructuring that favored GO bonds over COFINAs. [L1N1I109O]

But the opposite may be true in bankruptcy, which prioritizes debt backed by a revenue stream, like COFINA, ahead of unsecured debt.

“Bankruptcy totally changes the priority for those two bonds,” said George Schultze, hedge fund manager and head of Schultze Asset Management, which does not hold Puerto Rican debt.

Moody’s has rated the commonwealth's GO and COFINA debt on equal footing, forecasting recoveries for both between 65 and 80 cents on the dollar, and ahead of debt from Puerto Rican agencies like the Government Development Bank, which it sees as recovering less than 35 cents.

“There is no precedent to really resolve which one is the stronger between GO and COFINA,” said Tim Blake, a managing director at Moody’s, noting that Title III was uniquely created under last year’s Puerto Rico rescue law, PROMESA.

Dawson said it is a tough call, but negotiating leverage “seems to have shifted, in the context of bankruptcy, to favor COFINA.”

GO holders, to be sure, could try to challenge the legality of COFINA’s lien on the tax revenues. But contrasting statements between COFINA and GO holders may give a sense of each side’s confidence in the bankruptcy process.

Susheel Kirpalani, a lawyer for a COFINA investor group, on Wednesday called the filing “sound public policy.” All along, COFINA holders have favored the bankruptcy route.

But Andrew Rosenberg, a lawyer for a GO bond group, said “the economy of Puerto Rico will be put on hold for years” in a bankruptcy.

CREDITOR LEVERAGE

Creditors may have some leverage to petition a judge to toss the case, arguing that the oversight board did not meet PROMESA’s requirements to file a Title III.

PROMESA requires good-faith negotiations toward an out-of-court deal before any filing, as well as to establish “procedures necessary to deliver” audited financial statements for any entity entering bankruptcy.

Some Puerto Rican agencies still have not published such statements, and creditors have griped for months that the oversight board has not done enough to encourage compromises outside of court.

“We would agree there is a case to be made here” for dismissing the case, Keefe Bruyette & Woods analyst Chas Tyson told investors in a note on Wednesday.

Rosenberg said the oversight board blocked his group’s last-minute restructuring deal with the island in order to push it into bankruptcy, a claim a board spokesman quickly denied.

Another key issue that remains in limbo for debt holders is what the island defines as an "essential service." Under Puerto Rico's constitution, it cannot cut repayments to GO creditors except to maintain essential services.

All told, “this will be a field day for litigation, including over who has priority and whether the bankruptcy is even authorized,” said Schultze. “It could even go to the Supreme Court.”

(Additional reporting by Tracy Rucinski in Chicago)
By Nick Brown
Puerto Rico bondholders in for bumpy bankruptcy ride

Puerto Rico Will Close 184 Public Schools Amid Severe Economic Crisis

Puerto Rico is closing 184 public schools in a move expected to save millions of dollars amid a deep economic crisis that has sparked an exodus to the U.S. mainland in the past decade, officials said Friday.

An estimated 27,000 students will be moved elsewhere when their schools close at the end of May, Education Department spokeswoman Yolanda Rosaly told The Associated Press.

No further details were immediately available. Rosaly said Education Secretary Julia Keleher would provide more details soon.

The announcement about the schools' closure was just latest news this week that saw the U.S. territory take an unprecedented step into federal court to restructure a portion of its $73 billion debt.

Many economists had anticipated the island's move Wednesday to seek a bankruptcy-like process amid a 10-year recession, but it is impossible to predict what lies ahead.

The school shutdown announced Friday will be the largest mass closure of schools in the history of the U.S. territory. Officials shuttered 150 schools over the span of five years from 2010 to 2015.

Opponents of previous school closures say that transportation logistics and special education needs were not taken into account. An estimated 30 percent of Puerto Rico students receive specialized education, twice the average in the U.S. mainland.

Puerto Rico currently has a total of 1,292 public schools that serve 365,000 students. The island has seen its school enrollment drop 42 percent in the past three decades, and an additional 22 percent drop is expected in upcoming years, according to a report that the Boston Consulting Group submitted to the previous administration to help restructure Puerto Rico's education system.

Much of the drop was the result of parents moving to the mainland U.S. in search of jobs and a more affordable life, as well as thousands of teachers being recruited from the island for their bilingual skills.

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The island's low birth rate also is expected to keep driving down enrollment.

In related news on Friday, U.S. District Judge Laura Taylor Swain from Southern District of New York was designated as the presiding judge in Puerto Rico's bankruptcy-like case.

The judge will ultimately decide how and which Puerto Rico assets will be distributed to bondholders.

The decision to resolve a portion of the debt in court is the largest effort ever made by a U.S. government to shield itself from creditors. It's unknown how long the bankruptcy-like process will take, although local government officials believe it could be resolved in four years.

Puerto Ricans already have been hit with new taxes, higher utility rates and cuts to public employee benefits, among other things. Many people have also struggled to find jobs on an island of 3.4 million people with an unemployment rate that has hovered around 12 percent. Nearly 450,000 people have left for the U.S. mainland in the past decade to flee the crisis.

Overall, Puerto Rico has $73 billion in public debt accumulated in part by previous administrations borrowing money to cover budget deficits. By comparison, the U.S. city of Detroit had less than $20 billion in debts when it filed for bankruptcy in 2013, which was the biggest U.S. municipal bankruptcy ever.

The control board said the move to restructure a portion of the debt in court will help Puerto Rico gain access to the capital markets after credit rating agencies downgraded the island's debt to junk status in recent years.

Danica Coto / AP

A Puerto Rican and an American flag fly outside the Capitol of Puerto Rico, home to the Senate and House of Representatives, in San Juan, Puerto Rico, on Sunday, May 1, 2016.   Erika P. Rodriguez—Bloomberg/Getty Images
Puerto Rico Will Close 184 Public Schools Amid Severe Economic Crisis

BRIEF-Moody's says Puerto Rico's decision to invoke Title III under PROMESA a positive step for bondholders

May 3 Moody's:

* Says Puerto Rico's decision to invoke Title III under PROMESA and initiate court proceeding to restructure debt marks positive step for bondholders overall

* Says court proceeding will be orderly process that should be "better for creditors in aggregate than a chaotic and uncertain period"

BRIEF-Moody's says Puerto Rico's decision to invoke Title III under PROMESA a positive step for bondholders

Puerto Rico governor says seeking Title III bankruptcy for island

Puerto Rico Governor Ricardo Rossello told reporters on Wednesday he has requested that the U.S. territory's federal financial oversight board commence a Title III proceeding under last year's Puerto Rico rescue law known as PROMESA.

Title III is an in-court debt restructuring process akin to U.S. Bankruptcy. Rossello's remarks come a day after several major creditors sued his government over defaults on the island's $70 billion in debt. (Reporting by A Contributor in San Juan; Writing by Nick Brown)

Puerto Rico governor says seeking Title III bankruptcy for island

Puerto Rico governor announces historic restructuring of $70B debt through courts after talks with bondholders fail.

Puerto Rico governor announces historic restructuring of $70B debt through courts after talks with bondholders fail.

The House of Representatives will vote Thursday on the Republican-backed health care bill.

House Majority Leader Kevin McCarthy, R-California, told reporters Wednesday that he expects the vote on passage to occur between 12:30 p.m. and 1:30 p.m.

"We're going to pass it!" McCarthy said. "Let's be optimistic about life."

Republican leaders and the White House spent the day Wednesday hunting for votes and are believed to be within striking distance of passing the measure.

The margin is expected to be razor-thin. According to McCarthy, the House Rules Committee will meet this evening to set the parameters of debate on the floor.

Opponents of the bill are already attacking Republicans for scheduling a vote before the nonpartisan Congressional Budget Office has analyzed the amended bill.

The CBO score would project the effects of the bill -- the changes in the number of insured and premiums, and its impact on the federal deficit.

“Forcing a vote without a CBO score shows that Republicans are terrified of the public learning the full consequences of their plan to push Americans with pre-existing conditions into the cold," House Minority Leader Nancy Pelosi, D-California, said in a statement. "But tomorrow, House Republicans are going to tattoo this moral monstrosity to their foreheads, and the American people will hold them accountable.”

The CBO's most recent analysis of the of the American Health Care Act projected that 24 million more people would be uninsured by 2026 -- with 14 million more uninsured in the first year, compared to Obamacare.

Under budgetary rules, the Senate cannot take up the health care bill without receiving a CBO score, meaning the estimated impact of the measure will be known before the Senate considers it.

In addition to the American Health Care Act, the House will also consider H.R. 2192, companion legislation to make a technical fix preventing members of Congress and staff from exempting themselves from the AHCA.

House Republicans are scheduled to hold an all-member conference meeting Thursday morning.

By THE ASSOCIATED PRESS

Puerto Rico governor announces historic restructuring of $70B debt through courts after talks with bondholders fail.

Puerto Rico hit with lawsuits after litigation freeze ends

Bondholders sued Puerto Rico on Tuesday in the first legal challenges to hit the U.S. territory after the expiration of a freeze on litigation that protected it from lawsuits amid a deep economic crisis.

A group representing those who bought a portion of the $16 billion worth of bonds backed by Puerto Rico's sales tax said in its lawsuit that a government plan to cut its $70 billion debt is unconstitutional. The group accused government officials of strong-arming it into what it called "unfair, unjust, and illegally punitive terms."

Another lawsuit filed by Ambac Assurance Corp. accuses the government of illegally retaining $300 million owed to bondholders. The company said it also has been forced to pay more than $52 million in insurance claims as a result of ongoing defaults by Puerto Rico's government.

Ambac also filed three other lawsuits, one against U.S. Treasury Secretary Steve Mnuchin seeking a lien on rum taxes that his department collects and later remits to Puerto Rico. Ambac argued that Puerto Rico has illegally diverted rum tax revenue slated for bondholders.

Aurelius Investment LLC and others who represent those who hold some $1.4 billion in general obligation bonds also filed a lawsuit against Puerto Rico. The group said it is seeking in part to recuperate more than $240 million worth of interest owed, plus interest. The bonds are backed by the island's constitution.

The lawsuits are expected to be among several filed as bondholders seek to recover the money they invested in Puerto Rico government bonds. Puerto Rico already faced about a dozen lawsuits before the litigation freeze was implemented as part of a rescue package that U.S. Congress approved last year.

The newest suits come after the administration of Gov. Ricardo Rossello failed to negotiate any deal with bondholders after the May 1 deadline of the litigation freeze. Puerto Rico has defaulted on $1.3 billion of principal owed since the previous governor declared the $70 billion public debt load unpayable in June 2015.

Puerto Rico Chief of Staff William Villafane told The Associated Press just hours before the freeze expired that the government preferred to reach a deal with bondholders. But he said embracing a bankruptcy-like process could be an option if negotiations fail.

"At least essential services would be guaranteed," he said.

A spokeswoman for Gov. Ricardo Rossello said there would be no immediate comment other than a statement issued late Monday in which the administration said it was pursuing consensual agreements but that other options are on the table.

Rep. Nydia Velazquez, a New York Democrat, demanded faster action, calling on a federal control board overseeing Puerto Rico's finances to seek a court-supervised debt restructuring similar to Chapter 9.

"And Governor Rossello must either get on board or get out of the way," she said, saying she voted in favor of a rescue package last year so Puerto Rico could restructure its debt.

"Puerto Rico is no longer shielded from creditors rushing to the courthouse to lay claim to its assets - that includes the beaches, pieces of art, historical furniture and any assets whether they are nailed down or not. The people of Puerto Rico have had enough. The governor and the board have a moral imperative to act immediately."

Puerto Rico could announce a historic, court-supervised restructuring for a portion of its $70 billion debt. By comparison, the U.S. city of Detroit had $9.3 billion of obligations when it filed for bankruptcy in 2013 in the biggest U.S. municipal bankruptcy ever.

Puerto Rico's situation is more dire than Detroit's because the city, in part, had a firm set of rules in bankruptcy court, an option that the U.S. territory doesn't have, said Greg Clark, head of municipal research at Debtwire.

He also noted that that the government has to walk a fine line with bondholders amid negotiations.

"They're going to need them again at some point," he said. "Where that sweet spot is, nobody exactly knows."

The government on Saturday offered to pay 50 cents on the dollar to holders of general obligation and sales-tax bonds backed by Puerto Rico's constitution. Bondholders rejected the offer.

A fiscal plan for Puerto Rico sets aside $800 million a year for debt payments, a fraction of the $35 billion due in interest and payments over the next decade.

By DANICA COTO
Puerto Rico hit with lawsuits after litigation freeze ends

A Year After PROMESA, Congress Isn’t Planning Much to Help Puerto Rico

Last June, members of Congress wrestled with politically sensitive legislation aimed at allowing Puerto Rico to restructure its debts.

Nearly a year later, the law — PROMESA, signed by then-President Barack Obama on June 30, 2016 — is still plodding its way through the labyrinth of implementation. And a new Commonwealth government is working with a fiscal oversight board to craft plans that would help the island emerge from its debt crisis.

The issues reached new urgency on Monday, when a stay on creditor litigation expires.

These issues are on Washington’s radar, mostly because Congress is interested in overseeing implementation of PROMESA.

House Natural Resources Committee Chairman Rob Bishop (R-Utah) told Morning Consult that his committee, which had jurisdiction over PROMESA, said the panel “will continue oversight” related to PROMESA implementation. The minutiae of San Juan’s fiscal situation should remain the oversight board’s responsibility, he said.

“Getting involved in the weeds, in the details, is for the board to do,” Bishop said. “They are autonomous for that very purpose — so that no political entity can influence them on which direction they go. But we can have some kind of influence on the speed.”

Natural Resources already held a hearing this year about PREPA, Puerto Rico’s debt-strapped power utility. Bishop did not share any specific details about his plans on Puerto Rico oversight except to signal that he is currently prioritizing other committee agenda items that are unrelated to Puerto Rico.

Democrats are worried about the current situation. On Tuesday, according to a press release, Natural Resources Democrats will convene a forum that will discuss “the human cost of the financial crisis and address options for recovery that lift people out of poverty, protect and restore worker rights, and promote economic growth.”

The release noted concerns that funds with significant investments on the island will bring about “an avalanche of lawsuits could turn Puerto Rico’s recession into a depression” now that the stay has nearly expired.

Some investors are worried about that situation, too. Puerto Rico’s government still could move forward with a court filing under a legal process outlined in Title III of PROMESA.

That’s an approach that’s favored by some of Puerto Rico’s creditors. Matt Rodrigue, a managing director at the New York-based financial services firm Miller Buckfire who is advising a group of senior creditors of Puerto Rican COFINA bonds, told Morning Consult that initiating that process would help the government move along.

“Our view is that the best thing the government can do to protect itself is to use the tools that Congress provided — specifically a Title III filing — on May 2, so that they get the benefit of an ongoing stay on litigation and really can transition to the next phase of the restructuring process,” Rodrigue said in an interview. “We need to move forward.”

The Oversight Board would need to approve the decision to go forward with a Title III filing, and not everyone is on the same page about its merits. In a statement released Saturday, the ad hoc group of general obligation bondholders cautioned the board against setting San Juan on the path to Title III.

“We urge Puerto Rico’s elected leadership to work with creditors to construct a consensual solution that is based on a credible financial forecast and that avoids the freefall Title III that the Oversight Board seems intent on imposing,” Andrew Rosenberg, an attorney for the creditors, said in a statement that was critical of the Commonwealth’s current fiscal plan proposal.

RYAN RAINEY
A Year After PROMESA, Congress Isn’t Planning Much to Help Puerto Rico

U.S. Congress to give Puerto Rico short-term Medicaid help

By Robin Respaut and Nick BrownMay 1 (Reuters) - Ailing Puerto Rico would receive $295 million in Medicaid funding from the federal government as part of the U.S. Congress' spending plan to avert a government shutdown, Governor Ricardo Rossello said on Monday. Rossello said in a statement in Spanish that he was "grateful" for the addition in the spending bill reached late Sunday night. The full House of Representatives and Senate must approve the bipartisan pact, though prompt passage was expected this week. Puerto Rico's public health system is nearly insolvent, a key driver of emigration that has decimated the U.S. territory's population as it wrestles with $70 billion in debt, a 45 percent poverty rate and unemployment twice the U.S. average. The island faces a deadline at midnight Monday to negotiate a debt-cutting agreement with creditors, or open itself up to lawsuits over debt defaults. It could also file for a modified version of U.S. bankruptcy to protect itself from such litigation. One creditor, who owns insured Puerto Rican bonds, said the proposal was "not even close to a good proposal. "Not just lowball but also not a well constructed proposal," said Sean Burgess, portfolio manager and lead trader for Puerto Rico strategy at Sarasota, Florida-based Cumberland Advisors. BANKRUPTCY? The island's aggressive lobbying for federal healthcare funding in Washington is seen as a possible detractor to filing bankruptcy, which would not garner sympathy from Congressional Republicans who opposed the in-court restructuring provision in last year's Puerto Rico rescue law, PROMESA. [L1N1HZ02I] The $295 million will help fund the island's Medicaid budget for fiscal year 2018, which starts July 1, and enable Puerto Rico to contract with managed care health insurance companies that administer the Medicaid program. Without the money, the island would have to run the Medicaid program on its own, a massive undertaking that Puerto Rico is not equipped to do, said island Health Secretary Dr. Rafael Rodríguez-Mercado. But Puerto Rico will still need an additional $300 million to fund its entire Medicaid budget for fiscal year 2018, Rodríguez-Mercado told Reuters in an interview on Monday. He hopes that money will come from the Children's Health Insurance Program (CHIP) in September. Puerto Rico's $2.76 billionMedicaid budget has been funded in part by a one-time pool of money provided to U.S. territories under the Affordable Care Act, commonly referred to as Obamacare. That money is expected to run out by the end of 2017, triggering what island officials call the "Medicaid cliff" — the return to a federal funding cap of $321 million for Puerto Rico's Medicaid program. U.S. territories receive proportionately less federal Medicaid reimbursement than U.S. states. Prior to Obamacare, Puerto Rico partially funded its Medicaid budget through bonds, exacerbating the island's debt crisis. In recent weeks, Governor Ricardo Rossello has been lobbying to boost Puerto Rico's healthcare funding, warning that Washington's failure to do so would leave some 900,000 people without health coverage.

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Healthcare battle may delay Title III bankruptcy for Puerto Rico [nL1N1HZ02I] SPECIAL REPORT-Why people wait more than a year to see a doctor in Puerto Rico http://reut.rs/2e4T00o ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Reporting by Robin Respaut in San Francisco and Nick Brown in New York. Additional reporting by Richard Cowan in Washington; Editing 

by Daniel Bases) ((nicholas.p.brown@tr.com; +1-646-281-6045; Reuters Messaging: nicholas.p.brown.reuters.com@reuters.net; on Twitter @NickPBrown)) Keywords: PUERTORICO DEBT/HEALTHCARE



U.S. Congress to give Puerto Rico short-term Medicaid help

Puerto Ricans in U.S. protest debt crisis with a dash of rhythm

Frustrated with the Puerto Rican government, hedge funds and the Control Board tasked with sorting out the island's debt crisis, some Puerto Ricans on the U.S. mainland protested on Monday the best way they knew how: with music and dance.

The eve of a debt-cutting agreement that could allow creditors to sue the U.S. territory over defaults happened to fall on May Day, when Puerto Ricans aired their grievances at New York City's Union Square along with an array of leftist causes. But they did it in Puerto Rican style, using rhythm as an antidote to hardship.

The island's government, shouldering $70 billion in debt it cannot pay, and its bondholders were trying to reach an agreement about how much and which debt it would pay back.

Some people blamed the government of Puerto Rican Governor Ricardo "Ricky" Rossello. Others directed their ire at Wall Street. A few called for either independence or statehood, saying the island's status as a U.S. territory led to the crisis.

"Ricky, Ricky, Ricky: It's time to go!" went one refrain, set to a "plena" beat with Afro-Caribbean percussion instruments.

Sara Espino, a 27-year-old flight attendant, said she saw hundreds of "Boricuas" migrating to the U.S. mainland each week on flights from San Juan to New York.

"It's sad. We don't want to come here. Our hearts are in Puerto Rico, but the money is here," Espino said.

Nearly 400,000 Puerto Ricans have moved to the mainland United States in the past several years, and there are now more Puerto Ricans living on the mainland than on the island.

'NOT THE PEOPLE'S FAULT'

Eva Sotomayor, 24, who moved from the island two years ago because of the crisis, said the creditors on Wall Street should settle for less than what they are owed because they had dictated terms for so long under what she called a "colonial" arrangement.

"It's not the people's fault, yet they're the ones who are paying" with cuts to social services such as education, she said.

Puerto Ricans at least have a safety net unavailable to other Latin Americans. They can move freely to the United States and, once there, are eligible for public benefits.

There are 5.4 million Puerto Ricans living in the mainland United States, compared with nearly 3.5 million on the island, according to the U.S. Census Bureau. Net migration to the mainland reached 65,000 people in 2015, up from 28,000 in 2010.

Florida and New York have seen the bulk of newly arrived Puerto Ricans, along with Texas, Pennsylvania, Massachusetts and New Jersey.

Luis DeRosa, president of the South Florida Puerto Rican Chamber of Commerce, was born in New York and has lived in Miami for 20 years.

"This debt is years in the making. Part of the situation is that elected officials didn't have the foresight, or the control, to realize that the more you borrow, the more you owe," said DeRosa, whose father and wife's family still live in Puerto Rico.

"Unfortunately, at the end of the day, it is the middle class, the working class of Puerto Rico, who are stuck with the bill and it’s just too much to handle all at one time."

(Reporting by Daniel Trotta in New York, Bernie Woodall in Fort Lauderdale, Fla.; Additional reporting by Robin Respaut in San Francisco; Editing by Peter Cooney)
By Daniel Trotta and Bernie Woodall

A woman yells slogans during a protest against the government's austerity measures as Puerto Rico faces a deadline on Monday to restructure its $70 billion debt load or open itself up to lawsuits from creditors, in San Juan, Puerto Rico May 1, 2017. REUTERS/Alvin Baez
Puerto Ricans in U.S. protest debt crisis with a dash of rhythm

Puerto Rico Eyes Options As It Faces Debt Deadline — Again

After nearly two years of missed payments and delayed actions, Puerto Rico is bumping up against another deadline as it tries to grapple with tens of billions of dollars of debt.

One proposal for partial repayment of the debt was rejected over the weekend. Another option is for the island to essentially declare bankruptcy, through a process created specifically for Puerto Rico.

After midnight on Monday, if some sort of deal has not been struck, the U.S. territory will be fair game for lawsuits by its creditors.

Meanwhile, thousands of protesters marched in San Juan on Monday, in May Day protests fueled by anger over the out-of-control-debt and resulting cuts in services.

The island is preparing to "cut public employee benefits, increase tax revenue, hike water rates and privatize government operations, among other things," The Associated Press reports. The unpopular steps are driven by the same oversight board that has been negotiating the future of Puerto Rico's debt payments.

The debt was born out of a 25-year economic disaster that left the territory running a deficit year after year, taking out loans just to keep the lights on. Economic woes drove residents off the island and to the mainland, which worsened the cash-flow problem.

In 2015, the island's governor declared the debt, more than $70 billion, "unpayable." Puerto Rico couldn't afford to make its loan payments and also pay for basic services like police, schools and hospitals.

The two years that followed were marked by defaults on loan payments, budget cuts and tax hikes. Austerity measures meant residents of Puerto Rico — who are U.S. citizens — experienced slashes in government services.

If Puerto Rico were a municipality in the U.S., it would be able to declare Chapter 9 bankruptcy — that's what cities like Detroit have done when their debts became unmanageable. But as a territory, it doesn't have that option.

In June 2016, Congress passed a law, PROMESA, that created a special oversight board to tackle Puerto Rico's debt problem.

The board took some control away from local government, which has prompted protests from Puerto Ricans, who say the board — which has been facilitating negotiations between Puerto Rico and its creditors — is valuing investors' interests over those of the islanders.

But the oversight board also gave Puerto Rico a new option for handling its debt: If voluntary talks fail, the board has the ability to initiate a mandatory, court-supervised debt restructuring process.

PROMESA doesn't call this "bankruptcy," and it's not identical to Chapter 9. But the underlying principles are the same.

"It mirrors conventional bankruptcy processes that are ordered and arbitrated through a court system," says Eric LeCompte, the executive director of Jubilee USA Networks, a religious development organization that supports debt relief and debt forgiveness.

The "Title III" process, as it's called in PROMESA, allows Puerto Rico to address all of its debts at once, in a comprehensive process — which even Chapter 9 doesn't allow, LeCompte says. It's essentially a bankruptcy process custom-built for Puerto Rico's debt crisis.

The other option has always been to strike a deal without involving the courts.

Late on Friday, Puerto Rico's governor made an offer to the island's creditors that would have done just that. Bloomberg reports that the proposal would have paid as much as 77 cents on the dollar to some creditors, and as little as 39 cents on the dollar.

That was a worse deal than the previous governor had suggested to creditors, the Wall Street Journal reports. Bondholders rejected the idea, sending the debt back to the negotiating table over the weekend.

These negotiations have been dragging on for years, but a new deadline loomed over the latest talks.

Puerto Rico has been protected from litigation through a temporary stay, designed to buy time for talks, that expires at midnight on Monday.

That stay has been extended before, but Congress has made no move to offer a reprieve this time.

President Trump, for his part, has recently criticized efforts to help Puerto Rico with its financial crisis. He tweeted that a Democratic push to send funding to the island's Medicaid program amounted to a "bailout" of the U.S. territory. (An omnibus bill, passed over the weekend, ultimately included nearly $300 million for the healthcare program.)


People carry a large Puerto Rican flag as they protest looming austerity measures amid an economic crisis in San Juan, Puerto Rico on Monday. The May Day demonstrations come as the island faces a Monday deadline for reaching a deal on debt payments, or entering bankruptcy-like proceedings
CAMILA DOMONOSKE
Puerto Rico Eyes Options As It Faces Debt Deadline — Again