Puerto Rico’s U.S. Rescue Won’t Come Soon Enough to Halt Default
Even if U.S. lawmakers return next week and push through their Puerto Rico rescue with unusual speed, it may not come fast enough to save the island from its biggest default yet.
The legislation would put Puerto Rico’s budget and, potentially, a restructuring of its debt in the hands of a federal oversight board appointed by congressional Republicans and President Barack Obama -- a body that’s virtually impossible to set up before $2 billion of debt payments come due on July 1. And the bill doesn’t provide any additional federal money to the U.S. territory, whose government says it’s simply too broke to pay.
“I don’t think we would expect that Congress would enact anything that’s quick enough to solve the July 1 debt service problem,” said Phil Fischer, head of municipal research at Bank of America in New York. “There’s a lot of uncertainty about what will be paid and how.”
Puerto Rico’s cascading series of defaults will enter a new phase next month if it skips payments for the first time on general-obligation bonds, which the island’s constitution says must be repaid before everything else. With $805 million due on those securities, Governor Alejandro Garcia Padilla has said the commonwealth can’t cover what it owes without shutting off services crucial to the island’s 3.5 million residents, nearly half of whom live in poverty.
While the lapse would expose the island to a court fight with bondholders -- who had little recourse when it defaulted on securities with weaker legal protections -- they may still have to wait. A local law shields the government until January from lawsuits in Puerto Rico, while the bill that cleared the House Natural Resources committee last month by a 29-to-10 vote would halt them until February.
more...
http://www.bloomberg.com/news/articles/2016-06-02/puerto-rico-s-u-s-rescue-won-t-come-soon-enough-to-halt-default