Sunday, December 5, 2021

Hurtling Toward the Debt Cliff

By on March 17, 2016

On Sunday, March 13, clocks in the U.S. sprung forward by one hour, as part of Daylight Savings Time, bringing Puerto Rico’s time back in line with Wall Street and Washington, D.C. Sadly, that is the extent of the alignment in the Alejandro García Padilla administration’s timing with the financial markets and hallowed halls of Congress, where the commonwealth government’s advisers continue to hope that the Republican leadership on Capitol Hill will deliver a bill to address Puerto Rico’s debt crisis.

The confluence of events last week are dark omens for the prospects of a comprehensive measure to be filed in time to help Puerto Rico handle big debt-service payments it is facing in May and July. The lightning visit by House Speaker Paul Ryan’s emissaries, Republican congressmen Rob Bishop of Utah, and James Sensenbrenner of Wisconsin, was not an encouraging sign for Congress filing a debt-relief measure. In no uncertain terms, Sensenbrenner stated that it will be tough sledding for a relief bill in the U.S. Senate.

Lobbyists hired by the Puerto Rico government to help obtain a bipartisan debt-restructuring measure all point to Ryan’s commitment to help draft legislation that will enable a federal financial-control board to oversee the island’s financial affairs. So, too, are they encouraged by the reported support of House Minority Leader Nancy Pelosi, who allegedly believes she can rally the support of Democrats in the House.

Passing such a bill would take a simple majority vote—218 votes out of the total 435 members in the House—but there is an immovable block of representatives who continue to resist Ryan in his quest to file a measure for a federal control board for Puerto Rico, as well as legislation that would include a broad restructuring mechanism to help the island restructure a portion of its $70 billion debt load.

Sources on Capitol Hill have told Caribbean Business that Ryan continues to work on a draft of the Puerto Rico relief bill, but it would not come down for a floor vote in time to meet payments due on May 1. With the passing of every minute, hope on Capitol Hill is diminishing.

This race against time is taking place against the backdrop of a debt-exchange plan that is reportedly being retooled to make it more palatable for competing creditor groups that are fighting tooth and nail to have the hierarchy of the various obligations respected. Closing a deal that would bring 18 creditor groups into the fold will take more time than the seven days it took to create the universe—or is it millennia (that’s another debate).

Without congressional action or a debt-exchange deal ironed out by May, the commonwealth must start to contemplate enabling a debt moratorium for the Government Development Bank (GDB) that would buy time to enter negotiations with creditors.

Unlike the Puerto Rico Electric Power Authority, which survived from extension to extension until it achieved a restructuring-support agreement, the GDB does not yet have a legal path to a forbearance agreement (see Top Story, page 1). The route to consensual restructuring will be a nasty legislative gauntlet, but it must be set in motion now. It is of utmost importance to commence serious dialogue with creditors. It benefits no one to hope that Congress will act as we hurtle toward this horrendous debt cliff at breakneck speed.

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