Treasury Secretary Lew Reiterates Need for Broad Restructuring Regime to P.R. Bondholders
SAN JUAN – U.S. Treasury Secretary Jacob Lew met Friday with a group of Puerto Rico bondholders, reiterating Puerto Rico’s need to have access to a debt-restructuring regime if it is to solve its severe and rapidly deteriorating fiscal and economic crisis, according to a Treasury statement.
Lew urged all stakeholders to come to the table, while saying a solution will require shared sacrifices by all involved, including creditors. Moreover, the Treasury secretary stressed that without an “orderly restructuring regime enacted by Congress, there is no path out of insolvency and back to growth” for Puerto Rico.
The commonwealth government continues to lobby for congressional action during the first months of the year, particularly over access to a debt-restructuring regime. While the discussion has somewhat centered on regaining access to Chapter 9 of the U.S. Bankruptcy Code, both the administration of President Obama and the Puerto Rico government have been increasingly demanding a restructuring regime broader than Chapter 9, which only covers public corporation debt, or roughly a third of the island’s $70 billion debt. A broader regime would also include the commonwealth’s general obligations.
Puerto Rico could be defaulting on additional credits this summer amid a steeper debt-service schedule, which the commonwealth government has warned it may not meet amid the island’s severe cash crunch.
While House Speaker Paul Ryan (R., Wis.) has said the lower chamber aims to come up with a solution to the Puerto Rico issue before the end of March, the Republican majority in the upper chamber has yet to commit to a similar deadline, although some GOP senators have said they are moving forward on several initiatives.
The lower chamber will be holding two additional hearings Feb. 25 on the Puerto Rico matter.
“Puerto Rico urgently needs federal legislation to establish an orderly process for the Commonwealth to restructure its debts, paired with independent fiscal oversight that respects Puerto Rico’s self-governance,” Treasury’s statement further reads.
Failure to achieve such legislation could result in a disorderly default that could trigger protracted and costly litigation, threaten essential government services, delay or lower creditors’ recoveries, and make the island’s path toward economic recovery harder, Lew warned.
Meanwhile, Obama administration officials, including the U.S. Treasury secretary, met earlier this week with labor, community and religious leaders as well as business executives and representatives from national Hispanic and Puerto Rican diaspora organizations, according to the statement.