WASHINGTON –The House can meet a March 31 deadline to have a responsible legislative package to help Puerto Rico, even as it is negotiating with creditors on a new bond exchange proposal, House Natural Resources Committee chair Rob Bishop, R-Utah, said on Monday.
Bishop made his remarks in a press call ahead of a hearing on Puerto Rico to be held Tuesday by the House Natural Resources Committee's Subcommittee on Indian, Insular, and Alaska Native Affairs. The hearing will address the need for a federal oversight board in Puerto Rico and examine possible workable solutions to help the commonwealth's struggles with its nearly $70 billion of debt.
The March 31 deadline was set by House Speaker Paul Ryan in late December when he instructed House committees with jurisdiction over Puerto Rico to have a legislative solution by then.
"Yeah, we can get it done, especially if people don't take off and try to make it into some partisan endeavor," Bishop said. "We want to make this as open as we possibly can. As long as everyone keeps in those parameters and plays that game, yes we can meet those deadlines."
He added that the committee is keeping Puerto Rico's representative in Congress, Resident Commissioner Pedro Pierluisi, informed of all steps it is taking and that Pierluisi will "be a key player in whatever we are going to do." Bishop also said the committee is working with the Treasury Department, which released its own proposal for Puerto Rico in October of last year that called for, among other things, Chapter 9 bankruptcy coupled with a federal oversight board.
While Bishop said there are a number of ways people have proposed to address the situation, including some he said are "nothing more than buzzwords and political posturing," he distilled the possible solutions down to three: bankruptcy, establishing an advisory board group, and establishing a strong control authority board.
The solution Congress eventually works toward should take into account both short-term problems like the looming debt service payments, as well as long term issues like promoting economic growth, he said.
"There are people who are pushing for an advisory [board], controlling [board], and straight bankruptcy," Bishop said. "I think what [committee members] are trying to do is come up with something that will be a good outcome, trying to be as objective as possible."
The panel's witnesses on Tuesday should provide a better foundation for a legislative solution, he said.
Bishop's comments come as Puerto Rico's government has announced a bond exchange proposal that would reduce its debt burden by 46% to $26.5 billion from $49.2 billion.
The two bonds the commonwealth is asking the creditors to exchange their current bonds for are a "Base Bond" with a fixed rate of interest and amortization schedule, and a "Growth Bond" that is payable only if the commonwealth's revenues exceed certain levels, according to the government's release. The bonds also come with more secure backing like statutory liens and pledges on certain commonwealth revenues like income tax receipts.
Interest payments on the Base Bonds would start in January 2018 and scale up to 5% per year by fiscal year 2021, when principal payments would start. The Growth Bonds would only be payable when the commonwealth exceeds its baseline projections as a result of real economic growth on the island, the release said. The first payments, if they can be made, would begin in the tenth year after the close of the exchange offer and in any given year when the Growth Bond would be payable, creditors would receive payment up to 25% of such revenues.
The proposal is an attempt to lower Puerto Rico's debt service-to-revenue ratio on tax-supported debt to about 15% from the current 36%. If Puerto Rico's economy grows similarly to what is expected from the United States overall, investors will be able to recover the full principal amount of their investments through payments on the growth bonds, the commonwealth said.
"This proposal is a reflection of our commitment to work with our creditors on a sustainable solution that does not place the burden on one stakeholder group along," said Puerto Rico secretary of state Victor Suarez.
However, the plan requires "very high participation levels" from creditor groups along with the federal government maintaining at least its current percentage levels of support for the commonwealth, the government said. If either condition is not met, the terms will need to be adjusted.
Bishop acknowledged the release of the proposal during the call, but said there is a "pattern of inaction with deadlines [that] is not particularly new to the island."
"Time will tell how serious that effort really is," he added.
Triet Nguyen, a managing director at NewOak Capital LLC, said the Puerto Rico proposal "is clearly only the first salvo in what will surely be a protracted legal battle."
"First and foremost, [Puerto Rico] needs to convince creditors that the promised 'statutory lien' on the new bonds is superior to the constitutional protection of the [general obligation bonds] or the lockbox mechanism for COFINA [bonds]. Secondly, in our view, the 'Growth Bond' concept is only viable if there is a federal control board in place to make sure the financial disclosure is timely and accurate and that government spending is kept under control to generate enough 'excess revenues' to repay bondholders."
Assured Guaranty issued a statement on the proposal. "It is extremely disappointing, but not unexpected based on recent behavior, that the Commonwealth did not seek any input from its creditors before releasing its initial restructuring proposal, which appears to ignore bondholder protections provided by its constitution – including protections that have been acknowledged by various Puerto Rican governmental officials," the company said. "We continue to stress that constructive consensual solutions are achievable, which should be pursued in a meaningful process with all affected parties."
Bill Fallon, chief executive officer of National Public Finance Guarantee Corp., said the proposal "fails to appropriately recognize the roles that the capital markets have played in Puerto Rico's development and will need to play in Puerto Rico's pursuit of economic stability and future growth."
The witnesses for the hearing are: Anthony Williams, the former mayor of Washington D.C. and a senior advisor with Dentons US; Eric LeCompte, executive director of Jubilee USA Network in Washington; Carlos Garcia, the former chairman and president of Puerto Rico Government Development Bank; Simon Johnson, a professor of global economics and management at the Massachusetts Institute of Technology; and Thomas Moers Mayer, a partner with Kramer Levin Naftalis & Frankel law firm in New York, according to a congressional aide.
