By Nick Brown
NEW YORK (Reuters) - The chairman of the U.S. House Committee on Natural Resources censured Puerto Rico's federally-appointed oversight board on Thursday over delays in the island's debt restructuring, the latest sign of discord over how to fix the bankrupt, storm-ravaged U.S. territory.
In a letter to the board seen by Reuters - which was created by U.S. Congress in 2016 to manage Puerto Rico's finances - Utah Republican Rep. Rob Bishop said it had not done enough to engage with Puerto Rico's financial creditors on a massive debt restructuring, nor enforce much-needed structural reforms in Puerto Rico.
"I remain frustrated with the oversight board's inability and unwillingness to reach consensual restructuring agreements with holders of Puerto Rico's debt," he said.
The island is navigating both the largest bankruptcy in U.S. government history, with $120 billion in combined bond and pension debt, and its worst natural disaster in 90 years in September's Hurricane Maria. The storm killed dozens and caused tens of billions of dollars in damage, while thousands of Puerto Rico's 3.3 million residents remain without power more than six months later.
CURIOUS TIMING
Bishop's frustration echoes that of bondholders. In a Wednesday statement, Dominic Frederico, chief executive of Assured Guaranty Ltd, which insures Puerto Rican debt, urged the board "to work with creditors to create a sustainable economic recovery plan based not on political agendas but on the oversight board’s only mandate: to support economic stability in Puerto Rico."
Yet Bishop's letter comes at a curious time, just a day after the board indicated it would take a hard line on structural reforms.
In a letter to Governor Ricardo Rossello on Wednesday, the board demanded harsh pension cuts and labor reforms as conditions for approving the governor's fiscal turnaround plan, measures Rossello later vowed to resist.
With the plan still pending - and with warring creditor groups locked in litigation over competing claims to Puerto Rico's cash - the board can only do so much to facilitate a debt workout.
UNILATERAL PLAN
But Bishop's letter may have been written with an eye toward the future, one committee aide said.
If the board and Rossello cannot agree on a fiscal turnaround plan, the board has the authority to implement one unilaterally. With tensions mounting, and that scenario looking increasingly likely, "it would be prudent for the board to include creditors in those conversations," the aide said.
In the committee's view, creditor support is the biggest key to helping Puerto Rico regain access to capital markets - even at the expense of support from Rossello, said the aide who requested anonymity.
The turnaround plan is a key document because the economic projections contained in the plan will determine how much money Puerto Rico has to pay debt, and thus how much creditors will recover.
To be sure, a unilateral plan would likely perpetuate already-costly litigation over Puerto Rico's financial future. Rossello could resist implementing the board's plan, and the board could then sue to enforce it. That scenario has precedent, with the board having sued Rossello in August after he refused to impose board-ordered furloughs.
Rossello's latest draft plan, which the board has not approved, forecast $6 billion in debt service capacity over the next five years.