WASHINGTON Leading Republicans on Tuesday outlined a plan to help Puerto Rico shed crippling debt and accused investor-allied groups of misleading lawmakers about the proposal.
The rescue would steer creditors and holders of Puerto Rico bonds toward a new, independent board that would seek a fair way to write down an estimated $70 billion in debt.
Banks, mutual funds, hedge funds and Puerto Rico citizens all hold paper issued by 18 entities on the U.S. commonwealth and many of those investors, if not all, would face a loss.
Lawmakers in Congress are being lobbied – and attacked – by investor groups that are trying to protect their bottom lines.
“They are deceitful,” said Rep. Rob Bishop, a Utah Republican who leads the House Natural Resources Committee.
Bishop said accusations likening the Puerto Rico rescue plan to a government bailout were “crap,” and the plan had the virtue of “protecting taxpayers and not spending government money.”
The rescue plan does, however, adopt some principles of bankruptcy law and that makes it controversial.
Investors could be forced into a settlement over the objections of holdout bondholders under certain circumstances, according to a draft of the bill.
Some lawmakers said allowing Puerto Rico to modify its bonds could mean chaos for municipal markets.
“If they can do it for Puerto Rico, they can do it for every other state,” Rep. Tom McClintock said of the damage that the rescue bill would do.
McClintock, a California Republican, said he was “very concerned” about the plan after a half-hour meeting Tuesday afternoon of Republicans on the Natural Resources panel.
House Speaker Paul Ryan said in a statement that he supported Bishop’s effort because it “holds the right people accountable for the crisis (and) shrinks the size of government.”
Ryan also said he liked the idea of an independent board settling investor disputes, adding that legislation passed last week to halt payments on Puerto Rico’s debt was “troubling.”
The Republican Study Committee, a group of conservative lawmakers, said in a statement it was still reviewing the bill, but “we are encouraged that there appear to be some improvements.”
Ryan will need the votes of many fiscally-conservative Republicans – and as is seen likely, some Democrats – if he is to get the rescue package through the House of Representatives.
The plan will face a test on Wednesday when the Natural Resources panel begins to amend the plan during a law-writing session known as a “mark up.”
An aide to House Democratic leader Nancy Pelosi said her office was still reviewing the legislation.
(Additional reporting by Eric Beech in Washington; editing by Jonathan Oatis, Bernard Orr, G Crosse)