Congress will soon decide whether to shield cash-strapped Puerto Rico from investor lawsuits while the island maps a plan to resolve its financial crisis - an intervention that could divide some lawmakers and creditors.
Republican leaders who control Congress are due within days to outline a Puerto Rico rescue plan that would restructure its $70 billion debt outside bankruptcy and confront a 45 percent poverty rate and a looming health crisis as the Zika virus spreads.
Republican leaders agree with the Obama administration that an independent review board should mediate disputes between creditors and Puerto Rico officials, but lawmakers disagree over whether investors must put lawsuits on hold in the meantime.
"I think we need to keep the pressure up," said Congressman Jeff Duncan who opposes a freeze, or stay, on litigation.
"I would not be for allowing a stay," said the South Carolina Republican who has a vote on the Natural Resources Committee that is drafting a rescue plan.
Debtors can hold off creditors in bankruptcy court and that is partly why a stay on litigation is so sensitive: Republicans insist the Puerto Rico rescue is anything but a bankruptcy.
Opening the door to a Puerto Rico bankruptcy would be "ill-conceived and would undermine the rule of law" Republicans argue in a written outline of the Puerto Rico rescue plan seen by Reuters on Friday.
But while a stay on litigation "is a highly complex and sensitive component" of rescue, the hold on lawsuits is necessary, according to the outline, which envisions a five-member oversight board auditing Puerto Rico's finances and helping mediate creditor disputes.
A federal court may have to step in and resolve unworkable disputes but "not in the context of Chapter 9 bankruptcy" that is open to municipal governments, the summary of the bill says.
The Republican rescue plan that emerges from House of Representatives will likely be shaped in the coming weeks by input from Democrats in the Senate and President Barack Obama's Treasury Department.
In the House, the question of whether or not to allow a stay on lawsuits could split the Republican party leadership and lawmakers like Duncan who want Puerto Rico to squarely face its promises to lenders.
The issue could also raise tensions among creditors of Puerto Rico's 18 debt issuers, who have differing ideas of a fair settlement.
Holders of Puerto Rico's unsecured general obligation bonds generally oppose a stay on litigation, said a lobbyist for some of those investors who was not authorized to speak to the press.
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