Yes and no. What I've been saying is that this is pretty similar to what a standard municipal bankruptcy looks like. With the exception of not paying back the off-island creditors, I'm not sure what difference you see between the 2.
I strongly disagree here. The money being used to repay the creditors is public money. It's not PR's money, it's the U.S.'s money and so I'm perfectly fine with the U.S. setting requirements on accessing it.
When you say it's not orderly, I'm sure you mean something else because the rules seem clearly laid out, regarding when the funds can be accessed and who can access them, as well as what debt isn't cancelled. Perhaps you think the proposal isn't fair but it's certainly orderly.
Also, yes it will have the impact of reducing the liquidity and attractiveness of certain segments of PR debt. I don't see that as a negative. I see that as the natural outcome of being over leveraged and then bailed out.
But all this of comes back to my initial point which you're not resolving. Based on what is known about PR's current situation, from the dwindling population a/k/a tax base to the massive damage caused by a hurricane...how exactly is PR supposed to manage its and rebuild at the same time?
If you walked them into a standard bk proceeding, you'd be tying into a payment plan when significant amounts of their tax revenue would be spent on creditors who will not be adding anything to the improvement of the island. You will also be tying into a payment plan when we know that their revenue is falling year over year and unlikely to recover for years, if not decades.
So, how exactly does a municipal BK proceeding actually solve PR's problem?
It’s not orderly because it’s not following any established set of properties for repayment of debt but coming in after the fact and making up the rules of repayment based on arbitrary political feelings.
And again there already is a BK like process that was set up in 2015 for PR, and while by it’s nature it is retroactive (it was set up after the fact), it tries to mimic a real municipality process, complete with judicial oversight if it comes to that. It’s called PROMESA (I’m not yelling btw, it’s an acronym).
The superiority of the process is that it does not arbitrarily just throw one class of creditors under the bus based on political grandstanding (which is what the hedge fund exclusion is). And certain hedge funds have even tried to have that process rules unconstitutional under the appointment clause IIRC, so I’m not siding with these asshats. And to repeat, the warren/Sanders law does not exclude off island debt from repayment; unions, pension funds, and mutual fund companies (that waive their fee because finance is evil) that hold debt get repaid. But hedge fund companies that bought debt from these same entities don’t.
The fact that it’s not PR money is sort off irrelevant imo. States often will give money as part of a municipal Bk process. It’s no different than giving the money to PR and PR using it to restructure. It’s a taxpayer funded bailout and should be used to give PR the best bang for its buck while maintain the credibilty of the finance system.
Reducing liquidity of debt to PR may have been a good thing historically given you had a mix of bad federal policy and local mismanagement papered over by ever growing debt fueled by tax gimmicks. But there is no rational argument for saying that higher risk based borrowing costs will be a boon to PR in the future. Rational policy and cheaper debt based on risk assessment (not tax gimmicks) are both good things. That’s the balance that the PROMESA process should be trying to strike, how much of a fuck you to debtors vs the future impact it will have (I would argue for a larger fuck you than not, btw so I don’t see this as part of any disagreement here).
The other reason for not taking the warren / Sanders approach is not just the effect on PR debt liquidity and borrowing costs, but overall. Is the new approach to govt BKs / govt bailouts to be only original debt holders of a certain flavor get special treatment? That of course will have its reactions and side effects. Those unions and pension funds will worry that they can’t offlaod riskier debt to the hedge guys as easily anymore, and their risk premium / borrowing rate will go up.
Again the BK process is supposed to balance fair treatment of creditors with allowing a fresh start where warranted. For govts the problem is the people causing the BK don't personally get impacted and unlike corpetations, there is no shareholder that gets blown out. So the moral hazard is immense and law is used to restrain the process somewhat. This keeps municipal borrowing costs in check. Warren / Sanders does not do that and usurps a process that already is in place that aims to take this factors into account.