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Puerto Rico’s Crisis Packs the Pockets of Politicians and Lobbyists in the U.S.

By on December 24, 2015

The government of Puerto Rico expects Congress to include Puerto Rico in Chapter 9 of the U.S. Bankruptcy Code or any measure that addresses the island’s fiscal crisis in its year-end budget, after five hearings were held by congressional committees in 2015, but haven’t produced any clear results.

Simultaneously, Democrats and Republicans, who have power to authorize or reject any measure that addresses the island’s fiscal crisis, are getting ready for the 2016 elections, with campaign committees receiving political donations from mutual funds and hedge funds that hold debts from the government of Puerto Rico.

In 1984, congressional amendments excluded public corporations and municipalities in Puerto Rico from Chapter 9 of the U.S. Bankruptcy Code. In 2014, after a lawsuit filed by mutual fund companies Oppenheimer Funds and Franklin Templeton against the commonwealth government, the Federal Court in Puerto Rico and the First Circuit Court in Boston declared unconstitutional the Ley de Quiebra Criolla (P.R. Bankruptcy Law) that allowed public corporations to restructure their debt. Las week, the U.S. Supreme Court announced it would review the decision.

The investment firms that hope to cash in on Puerto Rico’s $70 billion public-sector debt have divided themselves into two camps: those that are against and those who favor debt restructuring, meaning that Chapter 9 is extended to the island. Democrats have said they support the HR 870 bill, submitted in February 2015 in the U.S. House of Representatives by Puerto Rico’s Resident Commissioner Pedro Pierluisi, which aims to extend Chapter 9 to the island. The majority of Republicans in Congress oppose this idea.

Politicians from both parties, who are part of the U.S. Senate’s Finance Committee, which has to evaluate the measure regarding Puerto Rico’s fiscal and economic crisis, and held a hearing on the issue in September 2015, received $327,250 in donations from mutual and hedge fund companies that possess Puerto Rico bonds, as researched by Centro de Periodismo Investigativo. The 14 Republicans who comprise the majority of the U.S. Senate’s Finance Committee and the 10 Democrats who are part of the same committee received donations from these companies between March 2014 and October 2015, according to documents from the Federal Elections Commission.

For its part, the U.S. Senate’s Judiciary Committee, which last week held the latest hearing on Puerto Rico’s crisis, is composed of 11 Republicans and nine Democrats, of which seven, from both parties, received donations from investment companies that held Puerto Rico bonds during the same period. Donations were made through employees of these companies or through political action committees.

The politician who has benefited the most from donations by investment firms that hold Puerto Rico bonds has been U.S. Sen. Charles “Chuck” Schumer (D-N.Y.), who is a member of the U.S. Senate’s Finance and Judiciary committees and has expressed his support for granting Chapter 9 access to Puerto Rico. Between March 2014 and October 2015, he received $99,150 in donations from these mutual and hedge fund companies. These companies include York Capital, Fore Research & Management, Appaloosa Management, Fir Tree Capital, Davidson Kempner, Redwood Capital, Centerbridge Capital, Avenue Capital, Blue Mountain, Apollo Management and D.E. Shaw.

Schumer has also received donations from law firms hired by different Puerto Rico bondholder groups, such as Quinn Emmanuel Urquhart & Sullivan, hired by the Sales Tax Financing Corp. (Cofina) ad hoc group; Davis Polk & Wardwell, hired by the Government Development Bank ad hoc group; and Gibson Dunn, hired by Puerto Rico Electric Power Authority bondholders.

In addition, Schumer has received donations from firms hired to lobby both in favor and against extending Chapter 9 to Puerto Rico: Podesta Group, hired by the Puerto Rico government to lobby in favor, and Venable LLP, hired by investment firms to lobby against. Mutual funds Investment Company Institute, MassMutual Life Insurance and its subsidiary Oppenheimer Funds, which ac-cording to Morningstar has more than $4 billion in Puerto Rico bonds and opposes debt restructuring, have also given donations to Schumer.

Besides donating to Schumer, MassMutual and Oppenheimer Funds donated to U.S. Sen. Charles Grassley (R-Iowa), who presides over the U.S. Senate Judiciary Committee and is a member of the U.S. Senate Finance Committee, and has voiced his opposition to including the island in Chapter 9.

“There are political interests that have both sides. They might give more to one side, but they cover the other side just in case. It’s the cockfighter’s game: I bet on my rooster but also against mine, just in case I lose. It’s a question of political maturity, and we can’t think only of the people for and against. That’s why I have no problem saying that bankruptcy for Puerto Rico is impossible; money is against it,” said Alfonso Giménez Lucchetti, a political and international affairs commentator, who has worked with the Democratic Party in the U.S.

—Laura Moscoso and Carla Minet contributed to this story


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