U.S. lawmakers' race to pass a rescue bill to aid Puerto Rico has stalled as a perilous debt deadline approaches.
The markup of the Puerto Rico Oversight, Management, and Economic Stability Act, or PROMESA, was slated to begin Thursday in the House Committee on Natural Resources, but was delayed abruptly after the committee had adjourned for the day.
"The administration is still negotiating on provisions of the legislation, creating uncertainty in both parties," said Chairman Rob Bishop, R-Utah, in a statement issued after the committee delivered opening statements for the markup on Wednesday evening. "This legislation needs bipartisan support, but members need time to understand the complexity of the issue and the ramifications of any proposed changes."
A new date for the markup and vote to get the legislation out of the committee and onto the floor of the House of Representatives has yet to be set.
Despite the setback, some Washington lawmakers are optimistic that the bill to help the fiscally struggling island will eventually receive bipartisan support, albeit not within the time frame for which they were originally aiming.
"We were hoping for May 1," said House Democratic Leader Nancy Pelosi about the target deadline for the Puerto Rico bill. Pelosi, speaking at her weekly news briefing Thursday, noted that with the recent setback, she was unsure if that deadline "was still possible."
May 1 is the next major financial hurdle the commonwealth faces, when a $422 million debt-service payment is due to bondholders of the Government Development Bank, the island's key fiscal agent and lender of last resort. The date falls on a Sunday, so the payment actually will be due May 2.
The GDB is suffering through its own liquidity crisis, with the most recent financial documents showing that the bank only had about $562 million in its coffers, meaning a likely default for the May debt payment. The GDB's financial situation is in such dire straits that Gov. Alejandro Garcia Padilla, issued an executive order on Saturday that declared a state of emergency at the bank, initiating capital controls, which freeze nearly all withdrawals and suspends the GDB's lending power.
Some veteran municipal bond experts believe this proposed bill abandons investors' contractual protections under a state-level constitution and are concerned that passing this legislation could set a dangerous precedent.
"We've migrated from the original effort … to something that's broader, more invasive and represents potential risks to the municipal market place," said Hector Negroni, co-founder, co-CEO and CIO of New York-based Fundamental Credit Opportunities and an owner of Puerto Rico debt.
"As soon as the law is enacted ... [Puerto Rico] can prioritize payments and put bondholders on the sidelines and freeze them out from pursuing their remedies. That's a dangerous precedent," he said.
However, others believe that the municipal market has a clear understanding of the risks associated with different debt issuance, including the $70 billion that was issued by Puerto Rico.
"There's a broad understanding that when you have an insolvency, there needs to be a restructuring," Lew said. "What makes Puerto Rico kind of unique is that it's not covered by any kind of an organized process to go through restructuring."