(Adds PREPA details, bond yields)
SAN JUAN, June 25 Puerto Rico Governor Alejandro
Garcia Padilla unveiled a bankruptcy-like process for some
public corporations to restructure their debts on Wednesday, in
a fresh bid to shore up the U.S. territory's deteriorating
The governor's proposed legislation, 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 approved by
creditors or a process overseen by the island's courts.
"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 afloat. All three rating agencies have cut the territory's
credit score to junk and the island has hired restructuring
consultants to help handle $70 billion in outstanding debt.
The territory's woes have spread into the wider $3.7
trillion municipal bond market. The island's debt has been
popular in the past because its interest is exempt from federal
and state taxation.
The law would not apply to the territory's general
obligations. Puerto Rico's 78 municipalities, Government
Development Bank (GDB), 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.
The Puerto Rico Electric Power Authority (PREPA) called a
last-minute meeting of its board of directors on Wednesday.
Board member Juan Rosario said he expected it was related to the
PREPA has one of the heaviest debt loads of the
corporations, $10 billion, according to Treasury Secretary Melba
Acosta Febo. Currently, it is seeking extensions of $800 million
of expiring lines of credit. There is uncertainty the GDB will
step in with needed liquidity if those negotiations fail.
In a call with reporters, GDB board President David Chafey
said the restructuring bill did not target any specific public
corporation. He said the GDB, which serves as a bank, fiscal
agent and financial adviser, was "continuously working with
PREPA to see what their alternatives are," however.
The governor's debt restructuring proposal comes as the
territory's legislature finalizes the fiscal year 2015 budget
before its session ends next Monday. Senate Minority Leader
Anibal Jose Torres said 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 Chafey.
"Many investors will see this (restructuring bill)
positively because it creates a judicial framework," he said.
Yields on bonds Puerto Rico issued in March began falling
after the governor's announcement reaching 9.191 percent, or 89
cents on the dollar, in afternoon trading.
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)