House Committee Approves Puerto Rico Bill with Bipartisan Support

A House committee on Wednesday advanced legislation to address Puerto Rico’s debt crisis with solid bipartisan support, a strong sign the bill could move quickly through Congress ahead of a potential default by the territory on July 1.

The legislation would create a debt-restructuring process and empower a federal oversight board to supervise what is shaping up to be the largest municipal debt workout in American history. The measure wouldn’t spend any federal money.

The House Committee on Natural Resources, which has oversight of federal territories, advanced the bill on a 29-10 vote, with 14 Republicans and 15 Democrats backing the legislation.

The bill, which produced a rare moment of bipartisan cooperation in an election year, has drawn strong opposition from some bondholders and other political groups that spent millions of dollars on television advertisements to defeat it.

Puerto Rico last year began defaulting on several classes of nearly $70 billion in debt it owes, threatening to worsen the island’s growth prospects after a decadelong recession. Because it isn’t a state, its municipalities aren’t eligible to restructure their debts in U.S. bankruptcy courts. Because it isn’t a country, Puerto Rico can’t turn to the International Monetary Fund for assistance.

Rep. Rob Bishop (R., Utah), the committee chairman, said he expects majorities of both parties to back the bill when it comes to the House floor. In the Senate, Majority Leader Mitch McConnell (R., Ky.) said Tuesday lawmakers were “anxious to take up” whatever the House could pass. The White House supports the measure.

The measure would mark a significant policy accomplishment for House Speaker Paul Ryan (R., Wis.), who tasked Mr. Bishop with crafting legislation earlier this year for the island to write down certain debts while subject to the federal board. They worked closely with the Treasury Department and Democratic lawmakers, and both sides complimented what they said was an unusually collegial and bipartisan process.

“The legislation provides a framework to motivate the government and its creditors to come to the table to negotiate more,” said Eric LeCompte, executive director of Jubilee USA, an organization that presses for debt relief.

Still, the compromise has been unpopular with blocs in both parties. Labor unions and elected officials in Puerto Rico have objected to several provisions, including an oversight board appointed by the White House and Congress that they say amounts to a colonial takeover.

House Minority Leader Nancy Pelosi (D., Calif.) and Rep. Pedro Pierluisi, a Democrat who serves as Puerto Rico’s nonvoting representative, have supported the bill, saying it is the best package they can secure under a Republican-controlled Congress. Lawmakers should “get real” about any alternative “that can actually become law,” said Mr. Pierluisi. “I do not believe one exists.”

Some conservative lawmakers, meanwhile, said it would harm creditors’ rights and create a potential precedent for distressed U.S. states.

Bond-market analysts said the legislation could actually help the broader $3.7 trillion municipal bond market, because by using the territories clause of the U.S. Constitution, Congress made clear it wouldn’t set a precedent for states.

“This creates a clear firewall and ring-fences Puerto Rico from the broader muni market,” said David Hammer, co-head of municipal bond portfolio management at Pacific Investment Management Co.

Moreover, the debt-restructuring mechanism would require Puerto Rico to cede more power to the federal government, he said. “That’s not something a state or local government would ever seek to do.”

Congress granted U.S. citizenship in 1917 to residents of Puerto Rico, which was seized from Spain after the Spanish-American War of 1898. The U.S. gave the territory the right to elect its own governor in 1947.

Under the legislation advanced Wednesday, a seven-member oversight board, not the government elected by Puerto Rico, would determine whether and when to initiate court-supervised debt restructuring, and it would have the power to approve or reject budgets. The board would terminate after Puerto Rico regains the ability to borrow at reasonable interest rates and balances its budget for four consecutive years.

—Siobhan Hughes contributed to this article.

Write to Nick Timiraos at nick.timiraos@wsj.com

Congressional Leaders Have Said Bill Could Pass House, Senate Next Month

By Nick Timiraos

House Committee Approves Puerto Rico Bill with Bipartisan Support

USA Swimming moves pre-Olympic camp from Puerto Rico over Zika concerns

Concerned about the threat of the Zika virus, USA Swimming has moved a pre-Olympic training camp from Puerto Rico to Atlanta.

Frank Busch, the national team director, sent out a letter Thursday to all national team athletes and coaches telling them of the change.

"I think it's the prudent thing to do," Bob Bowman, who coaches 18-time gold medalist Michael Phelps, told The Associated Press.

The U.S. team is still scheduled to hold a training camp in San Antonio from July 11-21.

After that, the team had been planning to make a stop in Puerto Rico for several more days of training before traveling on to Rio de Janeiro, where the Olympic swimming competition begins Aug. 6.

USA Swimming's decision follows a move by Major League Baseball to shift two regular-season games out of San Juan because of players' concerns about the virus. The May 30-31 series between the Marlins and the Pittsburgh Pirates will now be played in Miami.

The Zika virus is carried by mosquitoes and has been linked to microcephaly, a condition in which babies are born with undersized brains and skulls. There are also concerns that it might contribute to the Guillain-Barre syndrome in adults, a condition that leads to rapid muscle weakness caused by the immune system damaging the peripheral nervous system.

"The health and safety or our athletes is USA Swimming's primary priority and responsibility," said Scott Leightman, a spokesman for USA Swimming.

The Zika outbreak has been one of the major headaches facing Olympic organizers as they prepare for South America's first Olympics. Brazilian officials insist that precautions will be taken to keep athletes safe and point to the onset of winter in Brazil as being helpful in reducing the mosquito population.

But a Canadian professor, in article published last week by the Harvard Public Health Review, warned that the Olympics should be postponed or moved until the virus is under control. Amir Attaran of the University of Ottawa warned that the influx of visitors to Brazil will result in the avoidable births of malformed babies.

Brazil is by far the country most affected by Zika, though hundreds have now been infected in Puerto Rico, including the U.S. commonwealth's first confirmed death from the virus.

"As part of our preparations for the Olympic Games this summer, we have been closely monitoring the current situation with the Zika virus," Busch wrote in his letter, which was obtained by the AP. "According to the (Centers for Disease Control and Prevention) and other health experts in the field of science and medicine, our athletes would be highly exposed to the Zika virus in Puerto Rico.

Zika Transmitting Mosquitos Worldwide | Graphiq

"With this information, the national team division has decided to relocate the second camp to Atlanta."

The camp will now be held at the Georgia Tech aquatic center, site of the 1996 Olympics and a meet just last weekend featuring gold medalists Katie Ledecky and Nathan Adrian.

Busch wrote that a number of factors went into the decision to go to Atlanta, including the flight time to Rio (about 9 1-2 hours nonstop), the world-class facilities at Georgia Tech and hotel availability.

While no prominent national team members have expressed concerns about competing in Rio, Busch stressed that preventing athletes from being infected while at the Olympics was a top priority was a top priority.

"We will also educate Olympic team members about Zika and provide them with multiple tools to reduce the risk of being bitten by mosquitoes while in Rio," he wrote.

When asked about the seeming contradiction of canceling a camp in Puerto Rico because of Zika but going on to compete in the country hardest hit by the virus, Bowman said he believes the risk will actually be much lower at the Olympics.

"Honestly, we can control it better in Rio," he said. "They're taking every precaution they can. We're talking about swimming in an indoor venue in the wintertime. Plus, we have other measures we can take. We just feel like that's a much more controlled environment."

Busch said the setup in Atlanta will allow the powerful U.S. team to develop the sort of camaraderie that is so important heading into the Olympics. The squad will be determined at the eight-day trials in Omaha, Nebraska, which begin June 26.

"Team culture is one of the things that sets Team USA apart," Busch wrote. "We want to make sure our camp creates that unity as we head into the Olympic Games."







USA Swimming moves pre-Olympic camp from Puerto Rico over Zika concerns

Republicans Near Agreement With Treasury Department on Puerto Rico Bill

House Republicans and the Obama administration neared an agreement Wednesday to provide Puerto Rico a path to restructure its $70 billion debt load, the first step toward ending its decadelong recession.

With nearly all other details ironed out, disagreements remained over how to handle appointments to a seven-member board designed to oversee the island’s finances. Lawmakers appeared to have reached a compromise over a previous sticking point about how to respect the territory’s constitutional priorities governing bond and pension payments.

The bill would offer the island a legal out similar to bankruptcy and wouldn’t commit any federal money, a critical requirement to win support of conservatives.

Puerto Rico has defaulted on different classes of bonds, including earlier this month when it missed most of a $422 million payment, and faces payments totaling $2 billion on July 1. Municipalities in many U.S. states can seek bankruptcy protection in court, but Puerto Rico can’t because territories are excluded from the relevant part of the federal bankruptcy code.

The goal of the legislation is to reduce the debt burden, which currently absorbs about a third of the island’s revenues, almost three times higher than any state. Lawmakers are also trying to prevent a massive courtroom brawl between different creditors that could further chill investment in Puerto Rico, but the bill wouldn’t provide new incentives for businesses or federal subsidies designed to shore up population loss.

The bill is being strenuously opposed by some bondholders because it could force them to book losses sooner. Opponents have focused their fire on conservative lawmakers, such as Rep. Raul Labrador (R., Idaho), one of the founders of the House Freedom Caucus. But they may face an uphill battle.

“I am supportive of most of” the legislation, said Mr. Labrador on Wednesday.

Earlier this week, former Republican congressman Connie Mack IV, who is lobbying on behalf of bondholders, had included Mr. Labrador on a list of organizations and individuals that oppose the bill. Those groups “are getting a lot of pressure,” Mr. Mack said Wednesday.

Separately, the legislation would also exempt Puerto Rico from new Labor Department regulation finalized by the White House on Wednesday expanding who is eligible for overtime pay.

Opposition groups have been warning that the bill might set a precedent for distressed U.S. states.

House Speaker Paul Ryan (R., Wis.) has tried to beat back those arguments while leading delicate bipartisan negotiations with the Treasury Department and White House. Conservatives are leery of interfering with bondholders’ contracts while Democrats have called for broader latitude in restructuring debts.

Last month, House Republicans pulled an earlier iteration of the legislation from committee consideration after objections surfaced from both parties. Treasury officials had called that version of proposed debt restructuring unworkable, while a muscular advertising campaign from some bondholders characterized the legislation as a bailout, making conservatives uneasy.

The reintroduction of the legislation was repeatedly delayed last week as aides to Mr. Ryan sought to iron out differences with top officials in the Obama administration.

Those setbacks underscore the fluid state of play on legislation that has generally enjoyed an unusually bipartisan process. A bill isn’t likely to be introduced without assurances that the administration won’t oppose it.

House Natural Resources Committee Chairman Rob Bishop (R., Utah) said last week he expects that once Republicans reached agreement with the Treasury Department on the legislation, it would move “very quickly” through Congress. House Republicans said they planned to introduce the latest version of the bill as soon as this week.

Treasury Secretary Jacob Lew and Mr. Bishop separately warned last week, that failing to provide effective debt-restructuring relief now would lead to louder calls later for a bailout of the island and its bondholders. “If Puerto Rico spins out into economic chaos, you may never have a chance of recovering again,” Mr. Bishop said last week.

Puerto Rico’s economic crisis has led to a nearly 10% drop in its population over the last 10 years, a decline that rivals the worst of any U.S. state since the Great Depression. Population loss is squeezing businesses, forcing hospitals to close down floors, and depleting the island’s tax base.

“The reality is if the economy of Puerto Rico doesn’t come back, the bondholders are not going to do well,” Mr. Lew said during a visit to San Juan last week.

To avoid defaults last year, the central government withheld tax refunds and payments to suppliers, further straining private businesses. “There is an extremely high level of uncertainty, which makes it impossible to attract new investment,” said José Vázquez Barquet, who owns 18 Subway restaurants on the island and is currently president of the Puerto Rico Chamber of Commerce.

Pensions emerged as a complicating factor because in addition to Puerto Rico’s $70 billion debt, the island has an unfunded pension liability of some $40 billion. Puerto Rico has been in a recession for most of the past decade, and it is steadily losing population to the mainland, depleting its tax base.

Some bondholders have argued legislation should require pensions to be reduced before their bonds are restructured, while some Democrats have said pensions should be made senior to those bonds. The bill does neither, and instead says the control board must ensure pensions are adequately funded while respecting existing law.

—Kristina Peterson contributed to this article.

Write to Nick Timiraos at nick.timiraos@wsj.com

ENLARGE

An American flag and a Puerto Rican flag fly outside the Capitol of Puerto Rico in San Juan. PHOTO: ERIKA P. RODRIGUEZ/BLOOMBERG NEWS

Disagreements remain over appointing oversight board, priorities over bond, pension payments

By Nick Timiraos

Republicans Near Agreement With Treasury Department on Puerto Rico Bill