WASHINGTON - Lobbying efforts more than doubled in the second quarter of this year over pending legislation that would give Puerto Rico utilities and authorities access to Chapter 9 bankruptcy protection.
The bill, H.R. 870, introduced on Feb. 11 by Puerto Rico's non-voting member of Congress, Pedro Pierluisi, would grant bankruptcy powers on the island that are available in most of the 50 states.
Firms and groups spent about $490,000 lobbying either for or against the legislation in the second quarter, compared to $210,000 in the first quarter, according to opensecrets.com, lobbying documents filed with Congress and interviews.
An identical companion bill was introduced in the Senate on July 15 by Sens. Chuck Schumer, D-N.Y., and Richard Blumenthal, D-Conn., after the second quarter reporting period for lobbyists ended on June 30.
The debate over the bankruptcy legislation has taken on new importance since the Puerto Rico Public Finance Corp. defaulted on more than $57 million of debt service that was due for some 2011 bonds on Aug. 3 and the government announced it was suspending set asides for debt service for its general obligation bonds. Also, in June Gov. Alejandro Garcia Padilla said the island's $72 billion public debt is not payable without restructuring.
During the first two quarters of this year, supporters of the bankruptcy legislation spent a total of $580,000 for the Pierluisi bill, while those opposing it spent only about $120,000. But the money spent directly on lobbying over the bill has not been a clear indicator of success, with Republicans on the House and Senate Judiciary Committees saying they do not support the bills, at least for now. The reason for this disconnect may lie in harder-to-track amounts of money that were spent against the bill as well as anti-bill grassroots efforts that are not classified as lobbying.
The bill's main opponents, six mutual fund groups, hedge funds and other investment management firms with holdings of Puerto Rico munis, all hired the law firm Venable to lobby in the first quarter, but each recorded $0 spent for Venable's efforts. BlueMountain Capital, DE Shaw Galvanic Portfolios, Franklin Advisors, Knighthead Capital Management, Marathon Asset Management, and Angelo, Gordon & Co may have paid Venable, but as long their payments were each less than $5,000, they could record $0.
Also the bill sometimes appears as one of several items on which a firm is lobbying. For example, OppenheimerFunds, a mutual fund group that holds Puerto Rico debt, did not directly lobby on H.R. 870, but its parent organization, Massachusetts Mutual Financial Group, lists H.R. 870 as one of many issues it spent $720,000 to lobby on in the second quarter. A MassMutual spokesman would not detail how much of the $720,000 was spent on H.R. 870. He would only say the lobbying report follows disclosure requirements.
The Council for Citizens Against Government Waste also listed H.R. 870 as one of many issues it spent $70,000 to lobby on in the second quarter. The group did not return calls asking for information about its position on the bill or how much money was directly spent on the legislation.
And three other groups, the National Taxpayers Union, the Center for Individual Freedom and 60 Plus, a senior's advocacy group with connections to the Koch brothers, also spent money opposing the bill, but it is hard to know how much. NTU spent $30,000 in each of the first and the second quarters, but a spokesman said only a small amount of the money went toward lobbying against the bill. The Center for Individual Freedom spent $12,000 in the second quarter, but the group would not return calls on how much of that was spent to oppose the bill. The group, 60 Plus, is not a listed lobbyist but paid for an anti-bill media campaign in June.
None of those lobbying and grass roots efforts were included in the total of $120,000 spent directly against the bill in the first two quarters.
The money and influence behind the bill is fueling a debate between those who say Chapter 9 would offer Puerto Rico utilities, which issued a large portion of the island's debt, an orderly restructuring process, and mutual funds and others who fear bankruptcy would leave them, as creditors along with companies who have investments on the island, without the ability to fully recover what they've invested.
If the island's utilities default, the bond documents call for the creation of a receivership, a court-appointed receiver that would take over paying back the debt. The receivership could only be set up if the bondholders request it, the bond trustees pursue it, and a court agrees to appoint one. The receiver would ideally fix the utilities' rates at a level sufficient to pay creditors back while still allowing the utilities to provide services. The firms holding the debt see a default and receivership as a more effective way of recouping their money than Chapter 9, in which a court would not have the same power to raise rates and theoretically generate money to be used in repayment.
Haircuts imposed on creditors in past Chapter 9 situations like Stockton, Calif. and Detroit have left creditors wary of exposing themselves to substantial losses under that process. Opponents to the bankruptcy bill also argue they bought bonds at a time when Chapter 9 was not an option. They say that if Congress were to pass the legislation, the territory's utilities and authorities would have access to an avenue that couldn't have been taken into account by investors before they purchased the bonds.
Conversely, those supporting the proposed legislation argue that Chapter 9 bankruptcy is a more established system than the untested receivership model would be for Puerto Rico and would allow for a clear plan from the utilities for repaying their debt. Under Chapter 9, the debtors would work out their own plans, which would have to be approved by a judge. The creditors would not be able to propose competing restructuring plans.
There is also the popular argument among pro-bill advocates that it is unfair for Puerto Rico to be excluded from a law available in most other states. The exclusion is the result of a 1984 amendment to the bankruptcy code that explicitly said municipalities in Puerto Rico could not qualify for Chapter 9 protection.
Among all of the lobbyists, the largest amount of money spent was from Empresas Fonalledas, a large real estate and property management company in Puerto Rico that was absent from lobbying reports in the first quarter. The company paid the law firm Akin, Gump $240,000 in the second quarter to lobby for the bill. The company also paid Jose Fuentes, a self-employed lobbyist, $80,000 to work on H.R. 870 and tax reform.
The other major supporter of the bill during both quarters was the Commonwealth of Puerto Rico, which hired the powerful lobbying firm Podesta Group. The firm has significant ties to Democrats. Tony Podesta, the group's founder and chairman, is listed as one of multiple people lobbying for the Commonwealth on the bill. The Commonwealth paid the firm $150,000 in each of the first and second quarters while also paying a total of $405,000 to Roth Group, Prime Policy Group, and Smith, Dawson & Andrews on the bill and other issues during that time span.
The Puerto Rico Statehood Council provided the smallest portion of the direct pro-bankruptcy lobbying efforts over both quarters, spending a combined $40,000 to hire Navigators Global lobbyist Phil Anderson, who established the Puerto Rico Fiscal Stability Coalition to push for the bankruptcy bill.
Among those opposing bankruptcy access for the territory, BlueMountain paid the most money among individual firms -- $50,000 to Gibson, Dunn and Crutcher -in the first quarter. It was the only one of the six investment management firms listed as spending money in the first quarter. It then paid Gibson, Dunn and Crutcher another $10,000 in the second and joined the other five investment management firms in each paying Venable $10,000 for H.R. 870-specific lobbying activities that quarter.
Massachusetts Mutual Financial Group spent $690,000 of its $720,000 in total lobbying in the second quarter in-house and paid the remaining $30,000 to BGR Group, a lobbyist group with strong Republican ties.
The Center for Individual Freedom listed H.R. 870 as a one of multiple lobbying issues in its $12,000 second quarter spending and has called the bill "no more than a legalized bailout by U.S. taxpayers" that would be "a devastating blow to Americans" who have invested in the island's bonds. It has also unfavorably compared Chapter 9's ability to help as "akin to treating a bullet wound with pain relievers."
The Securities Industry and Financial Markets Association, the Investment Company Institute, and the American Federation of State, and Municipal Employees all listed H.R. 870 on their lobbying disclosure forms, but said they did not have a stance and were not lobbying on the bill.
Members of Congress, who find themselves in the middle of a debate that is increasingly being split down party lines with Democrats in favor and Republicans opposed, have also benefited from lobbyists involved with the bankruptcy bill.
H.R. 870 and S. 1774 in the Senate are both currently sitting in the Judiciary Committee subcommittees in their respective chambers. Data from the Federal Election Commission shows House Judiciary Committee Chair Bob Goodlatte, R-Va., received a $1,000 contribution from Michael Bopp, a Gibson, Dunn and Crutcher lobbyist working for BlueMountain against the bill, as well as two $1,000 contributions from Charles Black, a Prime Policy lobbyist working for the Commonwealth of Puerto Rico.
Goodlatte and Rep. Tom Marino, R-Pa., a key subcommittee chair, issued a joint statement in early July saying the committee Republicans believe that Chapter 9 "would not, by itself, solve Puerto Rico's difficulties, which are associated with underlying, structural economic problems" that need to be addressed first.
In the Senate, Judiciary Committee chair Chuck Grassley, R-Iowa, received a $1,000 contribution from Matthew Johnson, a Podesta group lobbyist for the bill, as well as a $1,000 contribution from Prime Policy Group's Black. Grassley has said he would like to wait to see a fiscal plan from Puerto Rico before moving on a Chapter 9 bill.
Though Puerto Rico seems to be moving toward more defaults, members of Congress may not want to move the bill forward unless the situation becomes more severe, said Municipal Market Analytics managing director Matt Fabian. The groups spending money in the first two quarters have "lobbied the bill into an intractable position," Fabian said. Had the lobbying frenzy not happened the bill likely would have been either "discarded entirely" or approved by now, he said.
"Either one side needs to relent or the facts on the ground need to change where local disorder or some other factor creeps up and shifts the ground under the lobbying issue," Fabian said.