U.S. Senator attacks Puerto Rico board’s debt restructuring

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U.S. Sen. Tom Cotton, R-Ark., attacked the Puerto Rico Oversight Board’s plan to slash bondholder payments as illegal.

In a letter sent on Tuesday, Cotton continued a challenge to the board’s debt plans first found in a letter he wrote with Sen. Tom Tillis, R-N.C., in early April. In the earlier letter they pointed out that the Puerto Rico Oversight, Management, and Economic Stability Act “requires that a certified fiscal plan ‘respect the relative lawful priorities or lawful liens, as may be applicable, in the constitution, other laws, or agreements of a covered territory or covered territorial instrumentality.”

The Oversight Board has approved a fiscal plan that would reduce bond payments through fiscal 2026 by 76%.

On April 25 Board Chairman José Carrión III wrote about the PROMESA section referenced by Cotton saying, “As you know, Congress deployed the word ‘respect,’ while consciously twice declining to use ‘comply with.’ ‘Respect’ provides flexibility and is different than the words Congress used for other fiscal plan requirements, such as to ‘ensure’ the funding of essential public services, ‘provide’ adequate funding for public pension systems, and ‘provide’ for the elimination of structural deficits.”

In response, Cotton wrote Tuesday, “The Oversight Board claims that Congress, in using the term ‘respect,’ actually gave the board ‘flexibility’ to decide which legal obligations to meet – which, in my book, is the exact opposite of what the word ‘respect’ means.”

“According to the Wall Street Journal, retail investors in mutual funds nationwide stand to lose $5.4 billion as a result of the board’s bizarre interpretation,” Cotton continued. “If this is what ‘respecting’ legal obligations means, what would ‘disrespecting’ them look like?”

Cotton said he was asking U.S. Office of Management and Budget director Mick Mulvaney to provide his office with a list of all federal transfer payments to Puerto Rico and a comparison of the per capita cost as compared with other states and territories.

According to PROMESA, the U.S. Congress cannot direct the board's actions. PROMESA allows the U.S. president to replace board members if he or she has cause to do so. Hypothetically, Cotton, if he could argue he was personally affected by the board's decisions, could also launch a suit against the board or could join existing suits.

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PROMESA General obligation bonds Commonwealth of Puerto Rico Puerto Rico Infrastructure Financial Authority Puerto Rico Public Finance Corporation Puerto Rico Highway & Transportation Authority Puerto Rico Public Buildings Authority Government Development Bank for Puerto Rico Puerto Rico