Puerto Rico governor seeks Title III bankruptcy for public debt
- Author: Zachary Reyes May 06, 2017,
May 06, 2017, 13:03
Puerto Rico's federal oversight board filed with US court to use bankruptcy-like proceedings to slash the island's $70 billion debt after failing to strike an agreement with bondholders, pushing the territory toward the biggest restructuring ever by a USA state or local government.
US commonwealth Puerto Rico is planning to seek a court-supervised restructuring of some $73 billion in outstanding debt.
Gov. Ricardo Rossello said Wednesday that a federal control board overseeing the island's finances has agreed with his request to put the debts before a court.
To view the full article, register now. It's a legal mechanism created by Congress to restructure debts if negotiations fail.
The move sends Puerto Rico into uncharted territory.
The next step for Puerto Rico in the bankruptcy filing is for the Supreme Court to designate a bankruptcy judge to handle the case.
The island said in a May 3 court filing that is restructuring its debt as its economic and financial crisis reaches "a breaking point". Hundreds of thousands of Puerto Ricans, who are US citizens at birth, have left the island of about 3.4 million people in favor of the mainland. Puerto Rico, an island in the Caribbean that is about the size of CT with half its gross domestic product, needs billions to stimulate its economy and upgrade its infrastructure, including its water and electrical delivery systems as well as waste collection.
Overall, Puerto Rico is facing $73 billion in debt.
Andrew Rosenberg, a lawyer for the general obligation bondholders, criticized the Title III filing, saying in a statement a consensual deal could have been reached. "I will support all actions Congress can take to guarantee fair treatment for the people of Puerto Rico, and give them the tools to build a better future". But key provisions of Title III have never been interpreted by the courts, and the law includes protections for creditors that chapter 9 doesn't.
The island has been mired in recession for over 10 years, causing many Puerto Ricans to migrate to the 50 states.
Hedge-fund creditors holding defaulted general obligation bonds were on the verge of completing a consensual agreement late Tuesday before the oversight board intervened to stop negotiations, according to people familiar with the matter. The bankruptcy would occur until Title III of the Promesa law, a law passed past year in an effort to aid the territory.
Puerto Rico's situation is not dissimilar to Detroit's, which was the culmination of years of economic stagnation and bad policy.
The case isn't formally called bankruptcy because Puerto Rico is barred from using Chapter 9, which is usually used by local governments seeking protection.
Bankruptcy will likely impact the daily lives of the people of Puerto Rico, who could face austerity measures such as cuts in pensions, worker benefits, and a reduction in health and education services. "There were 18 government agencies who were issuers with different securities, different collateral, with bondholders having interests against each other", he said.
Whatever the official status, many observers said the bottom line was that conditions on the island needed to improve.