UPDATE 1-Bill to call for U.S. Treasury to guarantee Puerto Rico loans

(Adds Treasury comment)
NEW YORK, Oct 8 (Reuters) - Puerto Rico's representative in
Congress on Thursday said he is introducing a bill that would
authorize the U.S. Treasury Department to guarantee repayment of
the U.S. territory's bonds.
Puerto Rico, with $72 billion debt and in recession for
nearly a decade, is trying to renegotiate its debt. It defaulted
in August by paying only a fraction of what was due on some
bonds. urn:newsml:reuters.com:*:nL1N1252LN
Puerto Rico does not presently have access to the capital
markets on reasonable terms and may soon be required to curtail
essential government services, Pedro Pierluisi said in a
statement.
The bill asks that the Treasury have authorization to
guarantee payment after first determining whether Puerto Rico's
government has shown meaningful improvement in managing its
finances, according to a press release from Pierluisi's office.
Any notes guaranteed by the Treasury would be used solely to
meet urgent short-term financing needs, the statement said. A
second provision in the bill would authorize the U.S. Federal
Reserve to buy certain short-term bonds issued by government
entities in Puerto Rico.
"Somewhere down the road, when Puerto Rico has got much
worse, I think Congress is going to have to get involved in
Puerto Rico in more size, and when they do, there is going to
need to be some mechanism to attract some money to Puerto Rico,"
said Height Securities analyst Daniel Hanson. "One way to do
that is to be a counterparty or co-signatory on a loan."
Getting congressional support for bills related to Puerto
Rico has proven an uphill task. Bills in the House and Senate to
allow Puerto Rico's distressed public agencies to access Chapter
9 bankruptcy laws have not drawn support from Republicans, who
control Congress.
A letter signed by a number of Democratic senators,
distributed by Pierluisi's office, called for Iowa Senator Chuck
Grassley to hold a hearing soon on Chapter 9. Grassley is the
Republican chairman of the Senate Judiciary Committee, which has
jurisdiction over the Chapter 9 bill, which would give Puerto
Rico access to the bankruptcy statute governing municipal
filings.
A Treasury spokesman said the Commonwealth needs an "orderly
process to restructure its debt" and that only Congress can
provide it access to federal bankruptcy protection.
"We're committed to working with Congress on finding
solutions that support the people of Puerto Rico," the spokesman
said.
Hanson said that while he did not think Pierluisi's bill
concerning the Treasury would be passed, he "wouldn't be very
surprised to see a version of it get passed someplace."