Puerto Rico Is Going to Ask for Bankruptcy Protection
- Author: Zachary Reyes May 06, 2017,
May 06, 2017, 0:03
Title III is part of the Puerto Rico Oversight, Management and Economic Stability Act.
Gov. Rossello announced on Wednesday, May 3, 2017, a historic restructuring of a portion of the US territory's $70 billion debt through courts after negotiations with bondholders failed.
While it was not immediately clear just how much of Puerto Rico's $70 billion of debt would be included in the bankruptcy filing, the case is sure to dwarf Detroit's insolvency in 2013.
Rosselló said he failed had to persuade the island's major creditors to accept less than they were owed, adding that the government was now facing an onslaught of new lawsuits stemming from a series of defaults. Any write-downs also would impact bond insurers Assured Guaranty Ltd., MBIA Inc. and Ambac Financial Group, which have guaranteed billions of dollars of Puerto Rico's bonds.
The announcement has sparked widespread uncertainty on the island, where Puerto Ricans are struggling with increases in taxes, higher utility rates and an unemployment rate that has hovered around 12 percent.
Puerto Rico's overall debt burden is almost seven times larger than Detroit's was when it entered bankruptcy.
Puerto Rico's financial oversight board on Wednesday filed a form of bankruptcy for the island under Title III of last year's Puerto Rico rescue law known as PROMESA, touching off the biggest bankruptcy in the history of the US municipal debt market.
The Title III provision allows for a court debt restructuring process akin to US bankruptcy protection.
The Commonwealth of Puerto Rico (a/k/a Government of Puerto Rico) filed a Title III Petition with the U.S. District Court in the District of Puerto Rico.
On paper, it does not include $17 billion of sales tax-backed debt, known as COFINA debt, or debt from other agencies.
Rossello's decision came two days after the end of a moratorium on payments to creditors.
"Title III was especially compelled by the commonwealth's need to restructure $49 billion of pension liabilities", the oversight board said in Wednesday's filing.
The decision to resolve a portion of the debt in court is the largest effort ever made by a USA government to shield itself from creditors. As of September 30, Puerto Rico and its various bond issuing authorities had missed almost $1.5 billion in debt service payments.
"And Governor Rossello must either get on board or get out of the way", she said, saying she voted in favor of a rescue package a year ago so Puerto Rico could restructure its debt.
Puerto Rico has been negotiating with creditors, mostly investors who bought distressed Puerto Rican bonds at a discount in the hope of making a profit by demanding full payment or something close to it. Island officials have been working with a federal control board set up under the restructuring law adopted past year.
Governor Ricardo Rossello tried to strike a debt restructuring deal with its creditors over the weekend. The board signaled in negotiations this month it wouldn't consider paying creditors more than the plan allowed, according to people familiar with the matter.
The mountain of debt has left Puerto Rico struggling and the island - a former Spanish colony of 3.5 million and a United States territory for more than a century - has several times failed to make payments.
The bankruptcy process is a "positive step", says Ted Hampton, an analyst at Moody's Investors Service.
Whatever the official status, many observers said the bottom line was that conditions on the island needed to improve. Given the deficit that we have inherited, it is my responsibility to guarantee the best interests of the Puerto Rican people.