Senate to Consider PROMESA on Wednesday

mcconnell-mitch-bl357.jpg

WASHINGTON – The Senate is poised to begin debate on the House's Puerto Rico rescue bill Wednesday morning with a possible final vote taking place later in the day.

The timing would leave one day before Puerto Rico is expected to default on a $2 billion July 1 debt payment, $800 million of which is on constitutionally backed general obligation debt.

Senate Majority Leader Mitch McConnell started the process for consideration by filing for cloture late Monday. The procedural cloture vote is expected to take place Wednesday morning and will require at least 60 votes to pass. If successful, it would eliminate the possibility of a filibuster and clear the way for general debate on the legislation, called PROMESA.

"This legislation is broadly expected to attract the 50 votes needed for passage, so in our view, the vote on cloture is more important than the vote on the actual measure since it will require more votes to advance the legislation across the finish line," said Daniel Hanson, an analyst with Height Securities, in commentary released Tuesday.

Some Senate Democrats, including Sens. Bob Menendez, D-N.J., and Joe Manchin, D-W.Va., have said they will seek to block the cloture vote, according to media reports. While sources have said it is unlikely that attempts to prevent cloture will be successful, there is still appears to be concern from the Obama administration, as Treasury Secretary Jack Lew traveled to the Hill on Tuesday to meet with legislators and urge quick action on the bill.

McConnell's scheduling of the vote so soon before the expected default forces the bill's opponents to potentially take the blame if the legislation does not move before the default, sources say. The majority leader also filled the amendment "tree" by taking up the available slots for amendments with proposed changes of his own. That will make it significantly harder for senators to get other changes included.

Legislators have said during the bill's consideration in Congress that there are parts of PROMESA they would like to see changed. But sources say the majority of Republicans and Democrats still see the bill as a compromise and are expected to vote for passage.

Senate Minority Whip Dick Durbin, D-Ill., echoed those sentiments in a post on the Medium website on Tuesday. He said he still has concerns with the bill and added that Republicans "have moved to block efforts to amend and improve it." However, he said he would support the legislation.

Legislators and officials see the timing of the legislation as important in part because it has a provision that would put a moratorium on creditor lawsuits filed between December of last year and the date the bill is enacted.

A default on Friday would lead to more creditor lawsuits that in turn could lead to court orders forcing Puerto Rico's government to pay its creditors before funding essential services like health and education.

For the Senate to meet the July 1 deadline and assure a stay is in place before the expected default, it will have to pass the bill without any amendments. If the bill is amended, it would have to go back to the House for consideration and the House does not come back from recess until July 5.

In addition to the stay, PROMESA, which passed the House 292 to 127 on June 9, would create a seven-member oversight board that would have the power to require balanced budgets and fiscal plans, as well as to file debt restructuring petitions on behalf of the commonwealth and its entities.

Lew and others, including Puerto Rico's governor, have said the moratorium on litigation is necessary before July 1 to protect the commonwealth from the possibility of forced creditor payments.

"Even a retroactive stay on litigation passed by Congress a few days later would not reverse such a court order," Lew wrote in a letter sent to Senate leaders on Monday.

However, Menendez, who said in a letter to colleagues on Monday that he plans to offer amendments to the bill that "imposes a neo-colonial control board" on the commonwealth, maintains "there is still time to get the bill right."

"Even if our work to improve this deeply flawed bill continues into the immediate days after July 1, there is no precedent to suggest that Puerto Rico will not be able to fund essential services during this time," he wrote.

The amendments, among other things, would give Puerto Ricans more say in who sits on the board by adding two members who would be appointed by Puerto Rican officials. They would also eliminate the board's ability to make binding recommendations for the commonwealth and would also ensure funding of essential services in the commonwealth as well as protect pensions, according to Menendez.

Hanson said that senators who co-sponsored past Puerto Rico-related legislation, like Sens. Martin Heinrich, D-N.M., Kirsten Gillibrand, D-N.Y., and Bob Nelson, D-Fla., may feel inclined to vote for Menendez's amendments, but overall the senators will not have the numbers to include any amendments in the final bill.

For reprint and licensing requests for this article, click here.
Bankruptcy Puerto Rico
MORE FROM BOND BUYER