Puerto Rico turns to courts for debt protection
SAN JUAN, Puerto Rico (AP) — Puerto Rico’s governor turned to the courts Wednesday to protect the U.S. territory from a crushing $73 billion debt in the largest e ort ever made by a U.S. government to shield itself from creditors.
Gov. Ricardo Rossello made the announcement after negotiations with Puerto Rico’s bondholders failed.
Rossello said a federal control board overseeing the island’s finances agreed with his request to put certain debts before a federal bankruptcy court.
The outcome of the case could have implications for financially troubled U.S. cities or states.
“We’re going to protect our people,” the governor said hours after the territory was hit with multiple lawsuits from creditors 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.
Rossello said one of the lawsuits sought to claim all revenues generated by the island’s Treasury Department for bondholders.
“I’m not going to allow that to happen,” he said.
Rossello said the debts of some agencies will be restructured in court, while others will be resolved through negotiations with bondholders. He said he did not yet have details on the breakdown of those debts. The island’s Electric Power Authority owes some $9 billion, the Aqueducts and Sewer Authority has roughly $5 billion in outstanding debt and the Highways and Transportation Authority owes around $7 billion.
Overall, Puerto Rico has $73 billion in public debt. By comparison, the U.S. city of Detroit had less than $20 billion in overall debt when it filed for bankruptcy in 2013, which was the biggest U.S. municipal bankruptcy ever.
Puerto Rican officials triggered the bankruptcy-like process after declaring they could not agree to the huge cuts in spending and new taxes demanded by investors. A fiscal plan for Puerto Rico sets aside $800 million a year for debt payments, a fraction of the $35 billion due in interest and payments over the next decade.
A federal district court judge will now be in charge of the restructuring. Bondholders cannot challenge Rossello’s decision for 120 days
Elias Sanchez, the governor’s representative to the federal control board, criticized creditors for filing lawsuits even as the governor continued to hold what he called good-faith negotiations after a litigation freeze expired Monday.
“When a line is crossed, the government has to act in favor of the people of Puerto Rico,” Sanchez said.
A group representing some of those holding $16 billion worth of general obligation bonds accused the board of sabotaging consensual negotiations and forcing Puerto Rico into bankruptcy.
“The economy of Puerto Rico will be put on hold for years,” said Andrew Rosenberg, adviser to the Ad Hoc Group of Puerto Rico General Obligation Bondholders.
“Make no mistake: The board has chosen to turn Puerto Rico into the next Argentina.”
Board Chairman Jose Carrion did not immediately address those comments, but said in an earlier statement that while the bankruptcy-like process is needed to o set lawsuits, consensual negotiations are still preferable and the board will pursue talks with willing creditors.