Puerto Rico’s towering troubles push it to bankruptcy plea
Where does island go under crushing debt?
Facing mountainous debt and population loss, the board overseeing Puerto Rico filed Wednesday for the equivalent of bankruptcy protection in a historic move that’s sure to trigger a fierce legal battle that puts the fate of the island’s citizens, creditors and workers at stake.
The oversight board appointed to lead the U.S. territory back to fiscal sustainability declared in a court filing that it is “unable to provide its citizens effective services,” crushed by $74 billion in debts and $49 billion in pension liabilities.
Here are some key questions:
WHAT HAPPENS NEXT?
U.S. Supreme Court Chief Justice John Roberts will appoint a life-tenured judge, probably a U.S. District Court judge, to oversee the case, said Melissa Jacoby, a University of North Carolina law professor and expert on municipal bankruptcy.
WHAT DOES THE OVERSIGHT BOARD DO?
The oversight board will try to negotiate debt cuts with creditors, after which it will propose a plan of adjustment. The judge will decide whether to authorize the plan, which could lead to massive debt cuts.
HOW WILL INVESTORS BE TREATED?
It depends on the status of their debt.
If they hold secured bonds, they might get paid in full. Unsecured bondholders could suffer significant cuts, depending on which types of debt the judge determines to be vulnerable.
WHAT HAPPENS TO PUERTO RICO PENSIONERS?
They might face cuts because Puerto Rico has run out of pension funds.
In the Chapter 9 bankruptcy of Detroit, retirees agreed to accept cuts after a federal judge ruled that their pensions could be cut in municipal bankruptcy. That could pave the way for a similar ruling in Puerto Rico.