The governor of Puerto Rico, Ricardo Rosselló, said he will take the island’s debt crisis into federal bankruptcy court, making it the largest government to seek refuge from its creditors in United States history.
Puerto Rico has roughly $73 billion of bond debt, and nearly $50 billion of unfunded pension obligations to restructure.
The case will not be formally called bankruptcy, since Puerto Rico is barred from using Chapter 9, the usual chapter used by insolvent local governments. It will instead petition for relief under a new federal law for insolvent territorial governments, called Promesa.
(via The New York Times)
The financial collapse promises to impose deep losses on bondholders who for years snapped up Puerto Rico’s securities, even as the government contended with a shrinking economy and chronic budget shortfalls. U.S. states can’t file for bankruptcy, and investors bought the bonds assured that it wasn’t a legal option for Puerto Rico either.
The scale of the restructuring is far larger than Detroit’s record-setting bankruptcy, and it’s unclear how long a court proceeding would last or how deep would be the cuts that are imposed on bondholders. The island’s financial recovery plan covers less than a quarter of the debt payments due over the next decade, assuming Puerto Rico’s budget can be steadied.