October 8, 2015 / 4:47 PM / 3 years ago

UPDATE 1-Bill to call for U.S. Treasury to guarantee Puerto Rico loans

(Adds Treasury comment)

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 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, the statement said. 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.

“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. Bills in the House and Senate to allow Puerto Rico’s distressed public agencies to access Chapter 9 bankruptcy laws have not drawn support from Republicans, who control Congress.

A letter signed by a number of Democratic senators, 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, which would give Puerto Rico access to the bankruptcy statute governing municipal filings.

A Treasury spokesman said the Commonwealth needs an “orderly process to restructure its debt” and that only Congress can provide it access to federal bankruptcy protection.

“We’re committed to working with Congress on finding solutions that support the people of Puerto Rico,” the spokesman said.

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

Reporting by Megan Davies; Editing by Dan Grebler

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