Puerto Rico Seeking Bankruptcy
The filing is the largest municipal bond bankruptcy in history, and America’s third largest bankruptcy, behind only the $691 billion filing by Lehman Brothers and the $328 billion bankruptcy of Washington Mutual.
Following the Title III announcement, the Ad Hoc Group of General Obligation bondholders, which holds approximately $3 billion of the island’s debt, issued a strongly worded statement accusing the oversight board of sabotaging creditor talks in order to push Puerto Rico into bankruptcy.
In a statement, Jose Carrion, the chairman of the Promesa-established Fiscal Oversight Board (JSF) that filed for the bankruptcy proceedings at the request of Puerto Rican Gov. Ricky Rossellos administration, said the entity determined that the measure was necessary and appropriate. The gap between USA state pension assets and benefits promised to public employees climbed to $1.1 trillion in 2015, Pew Charitable Trusts said in a report last month.
Instead, the governor of Puerto Rico, Ricardo Rosselló, petitioned for relief under Title III of a new federal law for insolvent territorial governments, called Promesa.
Rossello said one of the lawsuits sought to claim all revenues generated by the island’s Treasury Department for bondholders.
Today, Title III may be all that stands between order and the kind of economic chaos suffered by the people of Germany during the Weimar period following World War I. Understandably, investors who are affected by the crisis are greatly concerned about what will happen next. The low figure alienated creditors intent on plundering the island while negotiations toward an out-of-court restructuring foundered. “It is time for the government and the creditors to move forward in restructuring the public debt”, she said. But there is no realistic way that Congress could bail out the island given the massive debt and disappearing tax base.
If that’s the case, Puerto Rico’s bankruptcy would be almost five times bigger than Detroit’s, which set a record in 2013. This is a debt restructuring plan that is carried out under the auspices of the court.
Rossello’s decision came two days after the end of a moratorium on payments to creditors.
The filing includes only Puerto Rico’s central government, which owes some $18 billion in debt backed by the island’s constitution.
“When a line is crossed, the government has to act in favor of the people of Puerto Rico”.
“Make no mistake: The board has chosen to turn Puerto Rico into the next Argentina”, says Andrew Rosenberg, a lawyer at Paul, Weiss, Rifkind, Wharton and Garrison, who is advising some of Puerto Rico’s bondholders. The request came under Title III of the PROMESA law is an in-court debt restructuring process akin to USA bankruptcy protection, as Puerto Rico is barred from traditional bankruptcy because it is a US territory. Among other things, the law, called PROMESA, set up a federal oversight board to handle the territory’s debt negotiations and imposed a stay on financial obligations it owed. Meanwhile, the government will continue to talk to creditors and seek a stay on the almost two dozen lawsuits that the USA territory faces. Puerto Rico is barred from a traditional municipal bankruptcy protection under Chapter 9 of the USA code. Or did you grow up in Puerto Rico and then leave?