Puerto Rico files for biggest-ever US local government bankruptcy
PUERTO RICO has filed a debt restructuring petition that could lead to the biggest ever local government bankruptcy in US history.
The island has $123bn of bond debt and pension obligations, and has been sued by a number of major creditors over defaults on its bonds. The filing states that the weight of debt means Puerto Rico is “unable to provide its citizens effective services”.
It is unclear how much of the debt will be included in the restructuring but the case is likely to far outweigh Detroit’s insolvency in 2013, which involved $18bn of debt.
The filing of the debt restructuring petition under Title III of Promesa, a federal law for insolvent territories enacted last year by the Obama administration, represents the first time a US territory or state has effectively filed for bankruptcy relief in federal court, according to the New York Times.
Puerto Rico’s economy has been in recession for almost a decade. The unemployment rate is around 11 per cent and 45 per cent of the population live in poverty, Reuters reports.
Bankruptcy is likely to result in cuts to pensions and benefits, public health programmes and education services.
In Detroit’s case, the city agreed a debt restructuring with stakeholders partly by securing contributions from philanthropic foundations to it could avoid selling off its art collection.
However, David Tawil of Maglan Capital, which had held and previously sold Puerto Rico’s general obligation debt, told Reuters: “Unlike Detroit, there isn’t billions of unencumbered artwork to fund a restructuring.”
In a statement, Puerto Rico governor Ricardo Rossello said: “We remain committed to holding good-faith negotiations to reach agreements with our creditors.”
He added that the court process will “accelerate the process”.
However, some creditors have warned that going to bankruptcy court would send matters into “free fall”.
“The Commonwealth’s proposal is not a credible starting point for negoations,” said Andrew Rosenberg of Paul, Weiss, Rifkind, Wharton & Garrison, which is advising the Ad Hoc Group of Puerto Rico General Obligation Bondholders.
Last week, President Trump took to Twitter to say there should be no “bail out” for Puerto Rico.