October 8, 2015 / 4:10 PM / 3 years ago

Bill to call for U.S. Treasury to guarantee Puerto Rico loans

NEW YORK, Oct 8 (Reuters) - Puerto Rico’s representative in Congress on Thursday said he is introducing a bill that would authorize the U.S. Treasury Department to guarantee repayment of the U.S. territory’s bonds.

Puerto Rico, with $72 billion debt and in recession for nearly a decade, is trying to renegotiate its debt. It defaulted in August by paying only a fraction of what was due on some bonds.

Puerto Rico does not presently have access to the capital markets on reasonable terms. It is losing approximately 60,000 residents a year to the U.S. states and may soon be required to curtail essential government services, Pedro Pierluisi said in a statement.

The bill asks that the Treasury have authorization to guarantee payment after first determining whether Puerto Rico’s government has shown meaningful improvement in managing its finances, according to a press release from Pierluisi’s office.

Any notes guaranteed by the Treasury would be used solely to meet urgent short-term financing needs.

A second provision in the bill would authorize the U.S. Federal Reserve to buy certain short-term bonds issued by government entities in Puerto Rico, the statement said.

“Somewhere down the road, when Puerto Rico has got much worse, I think Congress is going to have to get involved in Puerto Rico in more size, and when they do, there is going to need to be some mechanism to attract some money to Puerto Rico,” said Height Securities analyst Daniel Hanson. “One way to do that is to be a counterparty or co-signatory on a loan.”

Getting congressional support for bills related to Puerto Rico has proven an uphill task. A bill Pierluisi introduced in the House to allow Puerto Rico’s distressed public agencies to access Chapter 9 bankruptcy laws has not drawn support from Republicans, who control Congress. A companion bill in the Senate has also not drawn Republican support.

A letter signed by a number of Democratic senators on Thursday, distributed by Pierluisi’s office, called for Iowa Senator Chuck Grassley to hold a hearing soon on Chapter 9. Grassley is the Republican chairman of the Senate Judiciary Committee, which has jurisdiction over the Chapter 9 bill in the Senate.

Hanson said that while he did not think Pierluisi’s bill concerning the Treasury would be passed, he said he “wouldn’t be very surprised to see a version of it get passed someplace.”

The U.S. Treasury was not immediately available for comment.

Reporting by Megan Davies; Editing by Dan Grebler

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