Puerto Rico requests
unprecedented bankruptcy protection for $70B debt, 5/3/17, Fox News
In a record-setting move, Puerto Rico
has filed for a form of bankruptcy protection that puts part of its monumental
$70 billion debt in the hands of a federal judge.
The historic announcement comes a day
after several major creditors sued the U.S. territory seeking to
recuperate the millions of dollars they invested in bonds issued by Puerto
Rico’ s government, which has declared several defaults amid a 10-year
recession.
A federal district court judge will now
be in charge of determining how Puerto Rico's debt will be restructured. "We have reached this decision
because it protects the best interests of the people of Puerto Rico," said
Gov. Ricardo Rossello in a statement on Wednesday.
Puerto Rico is barred from traditional
bankruptcy because it is a U.S. territory. The case was filed under Title III
of the PROMESA law, which allows an in-court debt restructuring process akin to
U.S. bankruptcy protection.
The process will give Puerto Rico the
legal ability to impose drastic discounts on creditor recoveries, but could
also spook investors and prolong the island's lack of access to debt markets.
Unlike a regular bankruptcy on the U.S.
mainland, a judge cannot unilaterally seize any of Puerto Rico's assets without
prior authorization from the federal control board. It is the biggest restructuring ever by
a local government, far larger than Detroit’s.
"The governor needed to show that
his primary allegiance lies with the citizens of Puerto Rico, and that was the
justification for the filing," said David Tawil, whose fund, Maglan
Capital, held Puerto Rico GO debt but has since sold it. "I’m not sure
whether bondholders are going to get any better treatment or recovery under
this course of action."
The legal proceeding does not mean
negotiations toward a consensual restructuring agreement must stop, the
governor said. "It is my hope that the
Government’s Title III proceedings will accelerate the negotiation
process," the governor said in the statement.
Rossello's fiscal plan for the island,
approved by the oversight board in March, forecasts Puerto Rico having only
$800 million a year to pay debt, less than a quarter of what it owes. The low
figure alienated creditors, and negotiations toward a restructuring deal have
foundered.
In addition to its debt, Puerto Rico is
facing a 45 percent poverty rate, a shrinking population and unemployment more
than twice the U.S. average. Puerto Rico and its general obligation
bondholders, whose $18 billion of debt is backed by the island's constitution,
were negotiating until the last minute.
Reuters and AP
contributed to this report.
http://www.foxnews.com/world/2017/05/03/puerto-rico-announces-historic-debt-restructuring-in-court.html
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