In July 2019, Sens. Elizabeth Warren, a Massachusetts Democrat, and Bernie Sanders, a Vermont independent, introduced a bill that would give the US territory of Puerto Rico a way out of its crushing debt crisis which was amplified by the devastation of Hurricane Maria in 2017.
The US Territorial Relief Act of 2018 includes as cosponsors two other Democratic senators whom are also prospective 2020 candidates: Kamala Harris, from California, and Kirsten Gillibrand of New York.
The bill looks to help US Territories relief debt obligations that are above its financial capabilities and sustainability. The logic may arrive from providing a vehicle to overturn scrupulous financial practices from large institutions that may seek to defraud borrowers and investors, such as misrepresentation of debtors finances.
The “trick”, as with any legislation, is in the wording. The bill specifically says relief for “unsecured debt”. This is perhaps the reason that the Puerto Rico Fiscal Board has been working relentlessly to exchange unsecured bonds for secured bonds as part of the Federal Court hearings as observed with the negotiation of the COFINA back bonds.
This bill establishes a process under which Puerto Rico and other U.S. territories may terminate certain debts if they meet eligibility criteria.
The bill allows territories to terminate their public, unsecured debt if they meet two of three criteria:
- the population of the territory has decreased by more than 5% over 10 years,
- the territory received major federal disaster assistance, and
- the territory’s per capita debt exceeds $15,000.
The bill also provides funding that a special master must allocate to certain creditors whose debts were discharged under this bill.
The devil is in the details, and making a distinction between secure verses unsecure is essentially the same as baking-in a loop-hole that could be just enough to make the legislation no more than symbolic good gesture.
See the full bill:
S.3262 – United States Territorial Relief Act of 2018
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