The legislation, which protects the island from creditors, creates a financial control board to help restructure Puerto Rico’s $70 billion in debt and oversee the island’s finances, marking the largest federal intervention ever into the US municipal bond market.
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The executive order issued by Puerto Rico’s governor, Alejandro Garcia Padilla, comes just one day before the US territory was due to make $1.9 billion worth of debt payments on July 1, including some $780 million in constitutionally-backed, general obligation bonds.
The bill emerged from months of negotiation between Democratic and Republican lawmakers and the Obama administration.
Obama said there is still tough work to do to get Puerto Rico out of the hole. The S&P Puerto Rico bond index has risen for the past 23 days, the longest winning streak since 2012, to the highest since Garcia Padilla’s announcement a year ago that the government’s obligations were too much to pay.
The announcement came just one day before the United States territory was due to make $1.9 billion worth of debt payments on July 1, including some $780 million in constitutionally-backed, general obligation bonds (GO).
A bill to help Puerto Rico overcome its fiscal crisis has cleared another hurdle. It said the emergency also covers the convention center authority, the employees retirement system, the Puerto Rico Industrial Development Co. and the University of Puerto Rico. The Senate voted 68-30 for the legislation on Wednesday, three weeks after the House approved the measure. It chose not to act when the governor repeatedly lobbied and testified before Congress that there was no way Puerto Rico would be able to meet its debt obligations and provide critical services for its people. It would also temporarily block creditor lawsuits.
“It is an essential first step in putting Puerto Rico’s financial house back in order”, he said.
“CCAGW looks forward to President Obama signing PROMESA into law”. Garcia hasn’t said if the island will default on the other $1 billion that is due.
It will mark the first time the USA territory has failed to pay on its general obligation bonds, a $13 billion swath that the island’s constitution says must be covered before other expenses.
Obama said that the law is not perfect but it does move in the right direction and gives Puerto Rico the chance both to resolve the uncertainty regarding its debt and to begin growing economically again.
Still, missed payments matter for the insurers who have to pay out on claims should Puerto Rico not deliver the cash to its investors. Thousands have fled the territory for the US mainland. He said ordinary Puerto Ricans would have little say over the control board and the package favors hedge-fund creditors over island pensioners.
“Even if I had shut down the government, we wouldn’t have had enough money to make the payment”, Garcia said at a news conference Friday.
Some, like Puerto Rican Senator Ramon Luis Nieves, say the board won’t bring any money to the island.
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During an interview Thursday morning on a radio station in Puerto Rico, García Padilla said he took issue with those who criticize the bill without looking at its positive aspects.
