WASHINGTON/NEW YORK (Reuters) - President Barack Obama on Wednesday appointed a seven-member board to oversee a financial restructuring for Puerto Rico, a majority Republican panel that some market analysts saw as favorable for bondholders of the U.S. territory, which has been crippled by a $70 billion debt crisis.
Among the board members, who Obama appointed on the recommendation of legislative leaders, are Arthur Gonzalez, a Democrat and a retired bankruptcy judge who oversaw the Chapter 11 cases of Chrysler and Enron, and Carlos Garcia, a Republican and the former head of Puerto Rico’s Government Development Bank who now runs private equity firm BayBoston.
The other appointees are Republicans Andrew Biggs, David Skeel and Jose Carrion III, and Democrats Jose Ramon Gonzalez and Ana Matosantos.
The idea of a fiscal control board, known colloquially as La Junta in Puerto Rico, is largely reviled on the island, which has a 45 percent poverty rate and whose chronic economic slump has helped spur rampant outmigration. Among the messages by protesters and graffiti artists plastered around San Juan are: “Wake up! They’re selling our homeland!” and “Say no to oppression.”
But from a market perspective the board figures to be a positive for creditors of the island, said David Tawil, president of hedge fund Maglan Capital. He particularly cited Garcia, calling him “an investor guy, very intertwined with everything that has happened up until now.”
And the Democrats on the panel are more moderate than expected, Height Securities analyst Daniel Hanson said in note.
Jose Gonzalez, president and chief executive officer of the Federal Home Loan Bank of New York, may be the “key swing vote” for creditor-friendly policies, Hanson said.
Keefe Bruyette & Woods analyst Chas Tyson, in a note last week, listed Jose Gonzalez, a former Santander executive, as a potential creditor ally because of his “significant experience in Puerto Rico’s banking sector.”
The board was created under the federal law known as PROMESA, passed earlier this year, which will bring Puerto Rico’s finances under federal oversight and give it the authority to restructure some of its debt.
The board will be tasked with assessing and certifying annual budgets and a fiscal recovery plan presented by the island’s government, as well as facilitating debt restructuring talks on the island, possibly through a bankruptcy-like process.
One interesting pick is Skeel, a professor at the University of Pennsylvania Law School. Though Republicans are generally seen as creditor-friendly, Skeel, a restructuring industry veteran, has repeatedly called for a broad-based restructuring in Puerto Rico.
But he has also stressed that creditor rights should be protected in such a scenario, possibly a good sign for the fate of Puerto Rico’s general obligation debt. That debt is viewed as sacrosanct in municipal debt markets, but it has no legal security under bankruptcy law, which has given some GO holders reason to fret.
Importantly, much of the negotiation tactics may be driven by the team of lawyers and financial advisers the board will ultimately select to represent it.
Restructuring consultant Martha Kopacz, of Phoenix Management Services, and veteran bankruptcy lawyer Richard Levin, of Jenner & Block, are among the professionals said to be lobbying to represent the board, according to people familiar with the situation.
House of Representatives Speaker Paul Ryan and Senate Majority Leader Mitch McConnell, both Republicans, each chose two members of the board, while House and Senate Minority Leaders Nancy Pelosi and Harry Reid, Democrats, made one pick apiece. Obama chose the seventh member.
Reporting by Susan Cornwell and Nick Brown; Additional reporting by Robin Respaut; Writing by Nick Brown; Editing by Chizu Nomiyama and Leslie Adler
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