SAN JUAN, June 25 Puerto Rico's Governor
Alejandro Garcia Padilla unveiled a bankruptcy-like process for
public corporations to restructure their debts on Wednesday, in
a fresh bid to shore up the U.S. territory's deteriorating
The governor's proposal, laid out in a bill expected to pass
the legislature soon, would apply to the semi-autonomous public
authorities that manage Puerto Rico's infrastructure and are
unable to pay their debts. It offers two options for adjusting
debts: a seven-step voluntary restructuring process, which would
be approved by creditors, and also a process overseen by the
"The principal purpose of this law is to protect the
interests of the people of Puerto Rico and to assure that the
existing void in federal law does not put in danger essential
public services," the governor said.
He added that Puerto Rico could not sacrifice "all we have
done to save the general fund" because "some public
corporations don't have the structure to pay their debts."
Some analysts have said that reforming the corporations is
key to salvaging the territory's finances. After years of
economic and population declines, Puerto Rico is struggling to
stay financially afloat. Earlier this year all three rating
agencies cut the territory's credit score to junk and the island
has hired Wall Street restructuring consultants as it struggles
to handle $70 billion in outstanding debt.
The effects of the territory's financial woes have spread
beyond its borders and into the wider $3.7 trillion municipal
bond market. Many municipal bond funds have held the island's
debt because its interest is free from both federal and state
The law would not apply to the territory's general
obligations. Puerto Rico's 78 municipalities, Government
Development Bank, retirement systems and some other authorities
are also excluded.
A few corporations are already considering restructuring,
but none has made a decision, Garcia Padilla said, emphasizing a
corporation would have to prove to its creditors or courts it
The governor's move comes as the territory's legislature
finalizes the fiscal year 2015 budget before its session ends
June 30. Senate Minority Leader Anibal Jose Torres said
Wednesday the legislature was ready to approve the measure in
the coming hours.
Puerto Rico's public corporations are supposed to be
fiscally autonomous, but they have been subsidized by the
commonwealth's general fund for years. Political pressure has
made raising rates impossible, while politicians have looked to
the corporations to repay favors. Their employees are the best
paid in the commonwealth.
U.S. law provides a framework for municipal entities to
declare bankruptcy while continuing their services, but "Puerto
Rico's public corporations fall through the cracks of these
laws," said David Chafey, president of the board of directors of
"Many investors will see this positively because it creates
a judicial framework," he also said.
Workers from the Puerto Rico Aqueduct & Sewer Authority
(PRASA) and the Puerto Rico Electric Power Authority (PREPA) and
several other corporations took to the streets Wednesday to
protest a recently passed fiscal emergency law that cuts worker
benefits. The demonstration could mark the beginning of a
national strike, labor leaders said.
Management at both PREPA and PRASA said the utilities'
services were operating normally.
Yields on bonds Puerto Rico issued in March have been
rising, partly on concerns over PREPA's liquidity. On Tuesday
the yields spiked to a record high of 9.731 percent, or 84.625
cents on the dollar.
Federal Reserve Bank of New York President William Dudley
said on Tuesday the territory "must confront this issue head
on," given public corporations account for 40 percent of its
(Reporting by Reuters in San Juan; Additional reporting and
writing by Lisa Lambert in Washington; Editing by Tom Brown)