Puerto Rico's $70 billion debt crisis has forced it to seek a form of bankruptcy protection in the largest bankruptcy in the history of US municipal bonds, Gov. Ricardo Rosselló announced Wednesday.
SAN JUAN, Puerto Rico (AP) Puerto Rico's governor has announced a historic restructuring of a portion of the USA territory's $70B debt through courts after negotiations with bondholders failed.
"The government's liquidity and solvency problems are massive and Title III has now become necessary to protect the people of Puerto Rico and avoid further negative impact on the economy from a flurry of litigation and continued uncertainty", he said, referring to the name of the bankruptcy-like process. However, the judge will first need approval from the federal control board that was authorized by Congress past year to oversee the island's finances.
Puerto Rico is barred from using the same bankruptcy law provisions benefiting other USA municipalities.
The legal proceeding does not mean negotiations toward a consensual restructuring agreement must stop, the governor said in a statement on Wednesday.
A legal stay that protected Puerto Rico from lawsuits expired Monday night. The judge will ultimately decide how and which Puerto Rico assets will be distributed to bondholders. The cost of fully servicing that much debt would be about $3.5 million a year, NYT.
But at the same time, some Puerto Ricans say quietly that if the court proceedings really do allow their government to cancel debt, their island may finally get the fresh start it needs.
The agency said a "restructuring of PRASA's debt appears imminent or inevitable" under PRASA's fiscal turnaround plan, approved by Puerto Rico's oversight board on Friday. Puerto Rico is preparing to cut public employee benefits, increase tax revenue, hike water rates and privatize government operations, among other things.
Puerto Rico announced a historic restructuring of its public debt on Wednesday, touching off what may be the biggest bankruptcy ever in the $3.8 trillion USA municipal bond market. The governor issued a 10-year spending plan that earmarked $800 million a year to pay interest and principal on bond debt, a fraction of the $35 billion due in such payments over the next decade.
FILE - In this October 29, 2016, file photo, Ricardo Rossello, then the Puerto Rican gubernatorial candidate, speaks during a forum, in San Juan, Puerto Rico.
The Motor City had $18 billion of debt, including outstanding bonds and unfunded liabilities for its worker pensions and retiree healthcare, when it filed for Chapter 9 municipal bankruptcy in July 2013.
"The decision today by Puerto Rico's governor to seek a judicial reorganization of the island's debts and put its finances on solid footing is the responsible thing to do", said House Democratic Whip Steny Hoyer (Md.) in a statement.
In addition to its debt, Puerto Rico is facing a 45 percent poverty rate, a shrinking population and unemployment more than twice the USA average. Since this process has never been used before, there is no real precedent for the case - meaning that whomever Roberts appoints for the job will have a great deal of control over Puerto Rico's future.