PAC Pacific Current Group Ltd

WASHINGTON—House Republicans are close to finalizing an agreement with the Obama administration on legislation to provide Puerto Rico a path to restructure its $70 billion debt load.

With nearly all other details ironed out, disagreements remained over how to handle appointments to a seven-member board designed to oversee the island's finances. There were also lingering differences over how to respect constitutional priorities governing bond and pension payments.

A successful legislative package would give the island its first chance in years to ease a mounting debt burden that threatens to prolong its decadelong recession. The bill would offer the island a legal out similar to bankruptcy, and wouldn't commit any federal money.

The bill follows weeks of delicate bipartisan negotiations between the Treasury Department and conservative lawmakers leery of interfering with bondholders' contracts. Democrats have called for broader latitude in restructuring those debts.

Last month, House Republicans pulled an earlier iteration of the legislation from committee consideration after objections surfaced on both the left and right. Treasury officials called the details of a proposed debt restructuring unworkable, while a muscular advertising campaign from some bondholders characterized the legislation as a bailout, making conservatives uneasy.

Those setbacks underscore the fluid state of play on legislation that has enjoyed an unusually bipartisan process, and a bill isn't likely to be introduced without assurances that the administration won't oppose it.

House Natural Resources Committee Chairman Rob Bishop (R., Utah) said last week that he expects that once Republicans reached agreement with the Treasury Department on the legislation, it would move "very quickly" through Congress. House Republicans said they planned to introduce the latest version of the bill Wednesday.

Puerto Rico has defaulted on different classes of bonds, including earlier this month when it missed most of a $422 million payment, and faces payments totaling $2 billion on July 1. Municipalities in many U.S. states can seek bankruptcy protection in court, but Puerto Rico can't because territories are excluded from the relevant part of the federal bankruptcy code.

Last week, Treasury Secretary Jacob Lew and Mr. Bishop separately warned that failing to provide effective debt-restructuring relief now would lead to louder calls later for a bailout of the island and its bondholders. "If Puerto Rico spins out into economic chaos, you may never have a chance of recovering again," Mr. Bishop said last week.

The reintroduction of the legislation was repeatedly delayed last week as aides to House Speaker Paul Ryan (R., Wis.) sought to iron out differences with top officials in the Obama administration.

Pensions emerged as a complicating factor because in addition to Puerto Rico's $70 billion debt, the island has an unfunded pension liability of some $40 billion. Puerto Rico has been in a recession for most of the past decade, and it is steadily losing population to the mainland, depleting its tax base.

Some bondholders have argued legislation should require pensions to be reduced before their bonds are restructured, while some Democrats have said pensions should be made senior to those bonds. The bill does neither, and instead says the control board must ensure pensions are adequately funded while respecting existing law.

Write to Nick Timiraos at nick.timiraos@wsj.com

(END) Dow Jones Newswires

May 18, 2016 17:05 ET (21:05 GMT)

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