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By Nick Brown
WASHINGTON, April 26 An adviser to Puerto Rico
Governor Ricardo Rossello said on Wednesday the distressed U.S.
territory would not necessarily file for bankruptcy if it failed
to reach a debt restructuring deal with creditors before
Monday's negotiating deadline.
"It depends on legal actions, if (creditors) go after our
officials,” Elias Sanchez, Rossello’s liaison to Puerto Rico’s
federal financial oversight board, told Reuters at an event in
Washington where Rossello spoke. “Maybe, but maybe not, too.”
Sanchez’s comments were the latest indication Puerto Rico's
leadership does not view bankruptcy as the immediate certainty
that many experts and people involved in the talks expect.
Under the federal Puerto Rico rescue law, PROMESA, Puerto
Rico has until Monday to negotiate with stakeholders on a plan
to reduce its crushing $70 billion debt load, or else open
itself to lawsuits from creditors.
There may be key political reasons for Rossello to delay
bankruptcy until the end of the fiscal year on June 30 — even if
forbearance efforts fail, and the island must defend a swarm of
lawsuits in the short term.
Bankruptcy could sabotage Rossello’s top-priority efforts to
secure federal funding for the island’s near-insolvent Medicaid
system, the federal health insurance system for the poor.
Sanchez previously voiced wariness about the
unpredictability of a court process, and Reuters reported last
week the island was urging creditors to sign a deal to extend
the Monday deadline.
To be sure, the island could seek to enter a Title III
bankruptcy at any time. It is the federal oversight board, not
the governor, that makes the final call on doing so.
“The cost-benefit analysis (of delaying) makes sense,” said
David Tawil, whose fund, Maglan Capital, traded out of its
positions in Puerto Rican debt. “It’s only two months.”
With talks going nowhere as the deadline nears, filing a
so-called Title III proceeding under PROMESA - an in-court debt
workout, akin to U.S. bankruptcy - is seen as a way for Puerto
Rico to protect itself from lawsuits, and arm itself with legal
sway to impose harsh repayment cuts.
But Republican lawmakers in Washington, already inclined to
view healthcare funding as a bailout, would be even harder
pressed to agree to Medicaid assistance for an island already
slashing its debt in court, said a creditor source familiar with
That could change if Puerto Rico secures funding before
Monday. U.S. Senate Democratic leader Chuck Schumer said on
Tuesday that Democrats were angling for a Puerto Rico healthcare
provision in a massive spending bill to fund the federal
government through Sept. 30.
On Wednesday evening, President Donald Trump expressed his
disapproval for the plan in a tweet, stating: “Democrats are
trying to bail out insurance companies from disastrous
#ObamaCare, and Puerto Rico with your tax dollars. Sad!”
Another rationale for delaying bankruptcy: an island-wide
plebiscite on June 11 asking Puerto Ricans to choose between
U.S. statehood and independence.
Although the referendum is not expected to resonate with
federal lawmakers, Rossello, a statehood proponent, nonetheless
may be loath to hurt his side’s chances by being associated with
(Reporting by Nick Brown; Additional reporting by Robin Respaut
in San Francisco; Editing by Daniel Bases and Peter Cooney)