title: Puerto Rico crisis bill strengthens creditors, but cram-down remains
text: SAN JUAN (Reuters) - The Congress’ latest attempt to solve Puerto Rico’s debt crisis appears to strengthen some - though not all - creditor positions in what has been a robust fight to influence the writing of a bill that lawmakers started to debate on Tuesday. The House Natural Resources Committee presented the legislation, formally called the Puerto Rico Oversight, Management and Economic Stability Act or PROMESA, last week after several false starts. The bill would put Puerto Rico’s finances under a federally appointed oversight board, while allowing the U.S. territory to restructure a $70 billion debt load that threatens to collapse an economy already hamstrung by rampant emigration and a 45 percent poverty rate. While that structure is unchanged from prior drafts, several small tweaks seem to benefit bondholders, including restricting the government’s ability to override decisions of the seven-member board.  Still, other elements of the bill are ambiguous, experts say - including the ability of Puerto Rico to enforce cuts to creditors’ debt portfolios through a bankruptcy-like court process without their consent. This is also referred to as a “cram-down.” “It doesn’t strike me that there are obvious winners and losers,” said David Skeel, a bankruptcy expert and professor at the University of Pennsylvania Law School, adding, “a lot will depend on who ends up on the control board, and what stance the control board takes.” The bill also allows provisions for Puerto Rico’s 18 distinct debt-issuing agencies to try to come to terms consensually with creditors, through a cooperative process where creditors would be able to vote on debt restructuring plans. Two-thirds of a creditor class would need to support a plan for it to take effect. PROMESA, also referred to as H.R. 5278, gives significant latitude to the board to manage Puerto Rico’s books and form a plan to stabilize its finances. In a change from a prior version released in April, the bill would strengthen language barring the Puerto Rican government from passing any laws to curb the board’s authority. “At the end of the day, the real virtue and vice of this bill is the strength of the control board,” Height Securities analyst Daniel Hanson, who follows Puerto Rico closely, said in an interview.     The latest draft would also restrict the government’s ability to transfer property on which creditors have liens. In the case of a proposal to cut repayments to creditors, it would compel a judge to assess the fairness of the proposal against Puerto Rico’s constitution, a protection absent from the April draft. Such protections seemed to modestly reassure markets when the bill was unveiled last week and investors bid up prices on Puerto Rico’s benchmark July 2035 general obligation debt. “The revised language is certainly more positive for the commonwealth’s GO (General Obligation) and GO-guaranteed bondholders as it attempts to preserve the constitutional protections they currently enjoy,” Bank of America Merrill Lynch analysts wrote clients. ‘CRAM-DOWN’  Still, the new bill retains enough ambiguity to make some creditors nervous. Most significantly, it preserves cram-down power and in one sense makes it easier to start the process.  That is because the latest draft of PROMESA removes a pre-condition to cram-down which would have required Puerto Rico to first complete consensual workout talks with creditors, allowing them to vote on a restructuring plan.  The current bill merely requires Puerto Rico to make “good-faith efforts” toward a cooperative deal before initiating a cram-down action.  Determining when Puerto Rico had satisfied that fuzzier standard would be up to the oversight board, giving the board more leeway on deciding when to push Puerto Rico into bankruptcy, and thus more leverage in creditor talks, said Melissa Jacoby, a bankruptcy expert and professor at University of North Carolina School of Law.  “It’s important that the restructuring provisions are strong enough to provide the leverage to encourage voluntary deals,” Jacoby said in an interview. “This bill asks a lot of Puerto Rico in some respects, and therefore, it’s not a good deal for Puerto Rico unless it has a robust restructuring possibility.” One creditor source who was not authorized to speak to the press voiced concern over how the “good-faith efforts” standard would be assessed: “We don’t know how the it will be enforced and those are the questions we’ll be asking.” 