US Treasury pushes unprecedented bankruptcy plan for Puerto Rico
WASHINGTON, USA -- At Thursday’s US Senate Energy and Natural Resources Committee hearing, Puerto Rican Governor Alejandro Garcia Padilla and Antonio Weiss of the US Treasury Department asked Congress for unprecedented bankruptcy measures for Puerto Rico, including allowing Puerto Rico to walk away from its constitutional debt.
As the New York Times reported, no state has the ability to restructure constitutional, or full faith and credit debt, and that, if Puerto Rico were granted this, other states like Illinois might soon follow.
"Super Chapter 9", if enacted, is expected to roil municipal debt markets and raise the costs of borrowing for states and municipalities across the country.
Henry Chanin, a Puerto Rican bondholder, retired educator, and member of the Main Street Bondholder coalition said, "By giving Puerto Rico the authority to completely disregard the rule of law and void Constitutional guarantees to bondholders, Congress would be establishing a precedent that would destroy the municipal market. This would put the retirement savings of millions across the country at risk."
In a surprise move, Garcia Padilla admitted under pressure from senators that a portion of the island's debt may actually have been issued in violation of the Commonwealth's constitution. The admission makes clear the distinct nature of Puerto Rico's different tranches of debt, some of which is protected by constitutional guarantee.
He also acknowledged the widespread, devastating impact that his debt avoidance measures will have on the island, conceding that 25-30% of the island's bondholders are Puerto Rican small investors.
Dr Elias Gutierrez, a Puerto Rican bondholder, professor of economics, and member of the Main Street Bondholder coalition said, "Super Chapter 9 would be de facto amendment of the Puerto Rican Constitution by Congressional legislative fiat without the participation of the Puerto Rican people. It is shameful the Obama Administration and Governor Garcia Padilla would endorse the violation of the Puerto Rican Constitution."
The Administration's unprecedented proposal, so-called "Super Chapter 9", would restructure all of Puerto Rico's debt, including its constitutional debt, and is widely expected to disrupt US municipal debt markets – raising the cost of borrowing for states and municipalities across the country.
Jim Millstein, Puerto Rico's chief restructuring advisor, has aggressively pushed for Super Chapter 9, ignoring bi-partisan interest in Congress for a deal that would bring desperately needed fiscal reform combined with an orderly restructuring mechanism for Puerto Rico's non-constitutional debt. Millstein has been criticized for profiting from his business dealings [around Puerto Rico's settlement with PREPA's bondholders, yet continues to advise the Commonwealth.
Main Street Bondholders Coalition is a project of the 60 Plus Association, and is comprised of small bondholders from across America who are committed to a policy process that returns Puerto Rico to sound financial management, respect for the rule of law, and the protection of their retirement savings.