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Puerto Rico seeks to make $900 mln note deal subject to New York law
September 18, 2014 / 7:18 PM / 3 years ago

Puerto Rico seeks to make $900 mln note deal subject to New York law

SAN JUAN, Puerto Rico, Sept 18 (Reuters) - Puerto Rico is preparing legislation that would make an upcoming $900 million short-term financing deal subject to New York state law, a move designed to reassure mainland investors worried about the risks of investing in the indebted U.S. commonwealth.

Bills filed by the Popular Democratic Party majorities in the Puerto Rico House and Senate this week would open the way to allow investors to sue under New York law in the event of any litigation related to the deal on tax revenue anticipation notes (TRANS) that the government is working on.

The legislation is seen as providing additional protection for investors, who may be wary of lending to Puerto Rico because of its move to restructure the Puerto Rico Electric Power Authority, which has over $9 billion in outstanding debt.

A source familiar with the deal told Reuters on Sept. 12 that Puerto Rico was aiming to complete the TRANS deal in the next 30 days. TRANS financing allows a municipality to smooth out the time lag between expenses and revenues.

Puerto Rico had allowed for New York legal jurisdiction for the $3.5 billion general obligation deal it undertook in March. That deal was heavily oversubscribed and very popular among hedge fund buyers.

The legislation (House Bill 2115 and Senate Bill 1188) related to the TRANS was filed on Monday, but no further action has been taken.

The legislation also provides for the Treasury to "cede its immunity, sovereign or otherwise, with respect to judicial procedures."

Puerto Rico's debt has been hit with a series of downgrades since it passed the Public Corporation Debt Enforcement & Recovery Act in June. The act allows some of Puerto Rico's largest and most indebted public corporations to undergo a bankruptcy-like process in local courts to restructure debt.

Ratings agencies said the passage of that act reflected badly on Puerto Rico's willingness to pay its debts and warned that it could be a prelude to a wider restructuring over $70 billion of the island's debt. Puerto Rico officials strongly denied this, saying the act applied to around $20 billion in debt held mainly by three public corporations. (Reporting by Reuters in San Juan; Writing by Edward Krudy; Editing by Leslie Adler)

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