US senators reveal bankruptcy bill for Puerto Rico

Puerto Rico to be eligible to file for bankruptcy under federal laws if new bill passes, but till then, obligatory payment deadlines need to be met

Photo by: Reuters
Photo by: Reuters

Updated Jul 28, 2015

US Democratic senators introduced on Wednesday a bill to allow Puerto Rico's public entities to file for bankruptcy under federal laws as the US territory starts negotiations with creditors to restructure $72 billion in debt.

Puerto Rico's public entities currently cannot make use of Chapter 9 bankruptcy laws as entities in US states can and instead have to renegotiate their debts with creditors.

Senators Richard Blumenthal and Charles Schumer introduced the bill along with 10 other senators. The bill is identical to one introduced in the House earlier this year by Puerto Rico's resident commissioner Pedro Pierluisi.

"What we are proposing is that those public corporations and municipalities in Puerto Rico be given the same access to Chapter 9 as any similar entities in the United States," said Blumenthal at a press conference on Wednesday.

Chapter 9 is the section of the US bankruptcy code that deals with municipal bankruptcies.

The US Treasury said on Wednesday it supported the bill and was encouraged by what it called growing bipartisan recognition for an orderly bankruptcy process in Puerto Rico that the bill would ensure.

"The Puerto Rican people - over 3.5 million US citizens - have persevered through a deep recession, and they should not be left to manage their financial challenges in an untested and potentially disruptive process," the Treasury said.

The bill has been bogged down in committee since February and Republicans, who control the House, have said they want to see more evidence of reforms in Puerto Rico before agreeing to Chapter 9.

Giving Puerto Rico access to Chapter 9 would make it easier for the island's entities to restructure their debts by providing a framework for an orderly process. Without it they would have to deal with suits filed by competing parties.

"Chapter 9 would provide Puerto Rico and its 3.5 million US citizens the essential legal framework that would allow us to adjust our debts in order to help generate economic growth and establish long-term fiscal stability," said Puerto Rico's governor, Alejandro Garcia Padilla, in a statement.

Padilla said in June that Puerto Rico was unable to pay its debts and put all of the island's various types of debt on the table for a possible restructuring.

It was unclear which entities would take advantage of Chapter 9. The largest public corporation, power utility PREPA, has around $9 billion in debt and is currently negotiating a restructuring with its creditors.