Darren Soto glad Puerto Rico will seek Bankruptcy-like measure under PROMESA
May 06, 2017, 01:52
Puerto Rico's restructuring will be the biggest in municipal-bond market history, vastly larger than Detroit's $18 billion record bankruptcy, and will mark the first time a state-level issuer has had debt written off in federal court.
Rossello said he is requesting that the island's financial oversight board initiate a Title III, a day after several major creditors sued his government over defaults on the island's $70 billion in bonds.
Unlike a typical bankruptcy, after filing in the District Court for the District of Puerto Rico, PROMESA requires the Chief Justice of the United States Supreme Court to appoint the district court that will oversee the Title III proceeding.
Puerto Rico's labor participation rate is only about two-thirds that of the US mainland. Prior to enactment of the legislation, Puerto Rico would have been barred from any bankruptcy filing as a U.S. territory.
Rossello said negotiations with bondholders had failed, forcing the government to seek relief through a bankruptcy-like move available under Title III of a federal law called Promesa. As this case moves forward, it will represent the largest bankruptcy ever experienced by the USA municipal bond market, estimated to be worth $3.8 trillion. "We remain committed to holding good-faith negotiations to reach agreements with our creditors", he said, adding that he hoped the court proceedings would "accelerate the process". But the expiration Monday night of the stay against litigation provided by PROMESA makes the government vulnerable to lawsuits by its creditors.
The May Day strike closed shops, while protesters blocked roads in the capital San Juan to the University of Puerto Rico and the city's worldwide airport. The cost of fully servicing that much debt would be about $3.5 million a year, NYT.
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.
They cite as evidence a law signed by Rossello on Saturday that would give the government authority to redirect sales tax revenue into Puerto Rico's general fund as part of a debt restructuring.
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 restructuring process through the court system will once again protect Puerto Rico from lawsuits.
According to the US Census Bureau, 46 percent of Puerto Rico's residents live below federal poverty levels, compared to the national average of 14 percent and 36 percent in Detroit.
Puerto Rico's situation is not dissimilar to Detroit's, which was the culmination of years of economic stagnation and bad policy.
Negotiations revolved around a board-approved fiscal plan that allocates about $787 million a year to creditors for the next decade, less than a quarter of what they are owed. The judge will be in charge of coming up with an orderly restructuring plan.
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