PUERTO RICO BANKRUPTCY BATTLE RESOLVED

Puerto Rico’s nearly fiveyear bankruptcy battle is ending after a federal judge on Tuesday signed a plan that slashes the U.S. territory’s public debt load as part of a restructuring and allows the government to start repaying creditors.

The plan marks the largest municipal debt restructuring in U.S. history and was approved following grueling bargaining efforts, heated hearings and multiple delays as the island struggles to recover from deadly hurricanes, earthquakes and a pandemic that deepened its economic crisis.

“There has never been a public restructuring like this anywhere in America or in the world,” said David Skeel, chair of a federal control board appointed to oversee Puerto Rico’s finances that has worked with the judge on the plan.

He noted that no bankruptcy mechanisms exist for countries or U.S. states like the one Puerto Rico was granted.

“This was an astonishingly complex and large and important bankruptcy,” Skeel said, noting that the island had three times as much debt as Detroit.

Puerto Rico’s government declared in 2015 that it could not afford to pay the more than $70 billion public debt load it had accumulated through decades of mismanagement, corruption and excessive borrowing. It also had more than $50 billion in public pension liabilities. In 2017, it filed for the largest municipal bankruptcy in U.S. history, a year after Congress created the financial oversight and management board for Puerto Rico.

The plan that restructures the central government’s debt goes into effect March 15 and could be appealed, although Skeel expected the judge to affirm it.

The board said that the plan signed by federal judge Laura Taylor Swain cuts Puerto Rico’s public debt by 80 percent and saves the island more than $50 billion in debt service payments as some creditors agreed to deep cuts. Board members noted the plan reduces claims against the government from $33 billion to just over $7.4 billion, with 7 cents of every taxpayer dollar going to debt service, compared with the previous 25 cents.

“This period of financial crisis is coming to an end,” said Natalie Jaresko, the board’s executive director. “We have accomplished what many thought impossible.”

The plan also avoids proposed pension cuts that had led to heated debates and created a rift between the board and the island’s governor and Puerto Rico’s legislature, which vehemently opposed them.

The plan notes that Puerto Rico has sufficient resources to pay the debt through 2034, but critics have said the government does not have the finances required to meet debt service payments and warned of more austerity measures.