Friday, 19 October, 2018

Puerto Rico announces historic debt restructuring in court

Puerto Rico announces historic debt restructuring in court Puerto Rico announces historic debt restructuring in court
Orlando Vargas | 08 May, 2017, 10:40

Title III, which is similar to the Chapter 9 bankruptcy, allows Puerto Rico and other USA territories to restructure their debt under the supervision of a federal judge.

Some of the island's debts will go before a federal bankruptcy court, making it the largest USA government entity to seek such protection from creditors. "While it is regrettable that Puerto Rico is facing a bankruptcy-like process to resolve its historic fiscal challenges, this was certainly an option of last resort". However, on Monday at midnight, a temporary court stay that protected Puerto Rico from lawsuits expired and negotiations were ended.

Board Chairman Jose Carrion did not immediately address those comments, but said in an earlier statement that while the bankruptcy-like process is needed to offset lawsuits, consensual negotiations are still preferable and that the board will pursue those with willing creditors.

Governor Ricardo Rossello tried to strike a debt restructuring deal with its creditors over the weekend. The island's economic crisis has been looming with it seeking refuge from $73 billion in bond debt and almost $50 billion of unfunded pension obligations to restructure.

Under PROMESA, Congress imposed an oversight board charged with fixing Puerto Rico's finances and devising an economic recovery plan.

Bankruptcy may not immediately change the day-to-day lives of Puerto Rico's people, 45 percent of whom live in poverty, but it may lead to future cuts in pensions and worker benefits, and possibly a reduction in health and education services.

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In the midst of Puerto Rico's financial calamity, Rossello, a scientist and the son of a former governor of the island, has been advocating for Puerto Rico to gain statehood as a way to help it dig out from debt. Puerto Rico is barred from a traditional municipal bankruptcy protection under Chapter 9 of the USA code.

The announcement came a day after major creditors sued Puerto Rico over defaults to its bonds. And the scale of Puerto Rico's debts is far larger than any other major American government, exceeded only by those of the more populated and wealthier New York, California and MA.

A nonbinding referendum on whether Puerto Rico's voters favor statehood, independence/free association or the current status is planned for June 11.

In other words, the board remains "hopeful that continued negotiations (including through mediation) will lead to consensual resolutions such that Puerto Rico will once again be able to experience economic and social prosperity after this hard process is resolved". With a state spending plan of $28.62 billion for 2016-17, the Controller's latest estimate predicts revenues down by about $413 million this fiscal year, down another $597 million in 2018, and down another $865 million in 2019.

The lawsuits are expected to be among several filed as bondholders seek to recover the money they invested in Puerto Rico government bonds.

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