However, the Recovery Act was rejected by a federal court in Puerto Rico back in February after public utility PREPA bondholders, including Franklin Advisers, Oppenheimer Holdings Inc.
After Puerto Rico Gov. Alejandro Garcia Padilla said Monday that the commonwealth’s $72 billion in bond debt is “unpayable”, concerns about a default escalated. “We certainly believe that this is something that Congress should take a look at”.
Meanwhile, Sens. Charles Schumer of New York and Richard Blumenthal of Connecticut announced plans last week to sponsor a bill that would allow the island’s government to file for bankruptcy protection.
Resident Commissioner Pedro Pierluisi (D), Puerto Rico’s nonvoting representative, has worked to build support for legislation in Congress, where the fight has now landed. “We must respect Congress’s decision to retain this authority”.
The island government recognized its problems only in part, and continued to budget as if it could borrow its way to prosperity.
Puerto Rico is being called “America’s Greece” because both tried to live by Alice-in-Wonderland budgets. Commonwealth general obligations maturing July 2035 traded Tuesday at an average price of 70.2 cents on the dollar, after falling to 66.6 cents on June 30, a record low, according to data compiled by Bloomberg.
Last week, White House spokesman Josh Earnest said the Obama administration is not contemplating a federal bailout for Puerto Rico.
Investors in Puerto Rico Electric Power Authority bonds challenged the law on constitutional grounds.
Lawyers for investors argued that Congress didn’t permit Puerto Rico to create its own debt-relief statutes.
Congress has yet to act, but if it changes the law to give Puerto Rico access to Chapter 9, bonds could be at risk.
Lawyers for Puerto Rico officials had asked the USA Court of Appeals in Boston to reinstate the local law to help it deal with $73 billion in debt.
The island has struggled to grow since 2006 and its debt has been trading at distressed levels for nearly two years.
This buys time for debt negotiations, which if successful and covering all debts would make bankruptcy – unavailable to states and territories like Puerto Rico – unnecessary, at least immediately.