Lobbying Groups Mobilize Against New York Debt Legislation

News Summary

Four major lobbying organizations representing Wall Street are actively opposing new legislation in New York designed to limit creditor lawsuits against countries in default. This law aims to protect nations from aggressive litigation tied to debt restructuring, particularly in light of Puerto Rico’s debt crisis. While some groups have modified their opposition, others argue that the bill could raise borrowing costs and impact New York’s status as a financial center. As the legislative session winds down, uncertainty looms over the Assembly vote and Governor’s decision.

New York – Four major lobbying groups representing Wall Street firms are mobilizing to thwart proposed legislation in New York aimed at limiting creditor lawsuits against countries that default on their debt obligations. The legislation, which passed the New York state Senate last week, seeks to protect nations from aggressive lawsuits often initiated by hedge funds dissatisfied with debt restructuring terms.

The proposed bill, which is now moving to the New York Assembly for further consideration, emerged as a response to Puerto Rico’s significant debt crisis that has had devastating effects on its residents, leading to school and hospital closures and pension losses. Assembly sponsor Jessica González-Rojas from Queens expressed optimism about the bill’s prospects in her chamber.

The Partnership for New York City, representing a coalition of prominent companies, law firms, and banks, has not opposed this iteration of the legislation, indicating that the sponsors have modified its language to be less contentious. This contrasts sharply with the vociferous opposition from several influential groups, including the Business Council and three national finance organizations: the Securities Industry and Financial Markets Association (SIFMA), the Creditor Rights Coalition, and the Loan Syndications and Trading Association.

After the Senate passage on June 4, these lobbying groups ramped up their efforts against the bill. They argue that the proposed law could inadvertently raise borrowing costs for nations and drive financial firms to relocate outside of New York. Current estimates suggest that approximately half of the global sovereign bonds, valued at tens of trillions of dollars, are issued under New York state law, a critical component for countries seeking to finance public services.

This legislation is aimed at reducing the power of “vulture funds,” which aggressively pursue repayment from countries that have defaulted on their debts. By reviving a historical defense against these lawsuits, the bill attempts to lower interest rates on defaulted debts. Bloomberg analysts predict that the legislation could impact around $800 billion in debt held by developing countries.

A memo from the Loan Syndications and Trading Association and Creditor Rights Coalition indicated that an estimated $700 billion in sovereign bonds issued under New York law may be traded in 2024, representing significant revenue for both traders and financial firms. Concerns surrounding the bill suggest a worrying possibility that passing it could lead to a shift in sovereign debt issuance, trading, and litigation to other states.

The Business Council has voiced apprehensions regarding how the legislation could impact New York’s economy, its budget, and its reputation as a global financial hub. In contrast, experts like Gregory Makoff have argued against the notion that countries would move their debt issuance away from New York solely to escape lawsuits, putting those fears into perspective.

In addition, the Loan Syndications and Trading Association and Creditor Rights Coalition claim that the proposed bill threatens the sanctity of contracts and would inevitably increase costs for nations. SIFMA has also circulated a memo reiterating its objections, substantiating its stance on the same day.

During recent Senate discussions, Republican Senators Jack Martins and Mark Walczyk delivered speeches opposing the proposal. Following their remarks, lobbyist William Crowell met with both senators representing the Loan Syndications and Trading Association, highlighting the organized response from industry stakeholders.

As the New York state legislative session approaches its conclusion, uncertainty looms over whether the Assembly will vote on the bill. González-Rojas acknowledged the limited time remaining for discussions, noting the fierce competition among various bills vying for attention. Should the bill successfully navigate the Assembly, it will be sent to Governor Kathy Hochul for her consideration, where she may either sign, veto, or amend the legislation.

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