Puerto Rico Governor Ricardo Rossello with national media reporters, after their visit to an event held by the Institute for Research on Presidential Elections late last month in D.C. (Twitter image)
By NAN Business Editor
News Americas, NEW YORK, NY, Thurs. May 4, 2017: The Caribbean US territory of Puerto Rico on Wednesday filed for bankruptcy, following Detroit down that path while carving its own path in insolvency history. Here are 8 things you should know about the filing:
1: It’s the biggest bankruptcy filing by a government entity ever in the $3.8 trillion U.S. municipal bond market! The move comes after the Fiscal Oversight Board installed by the U.S. Congress last year stopped trying to negotiate with creditors and filed for bankruptcy and a day after several major creditors sued Puerto Rico over defaulting on its bonds.
2: The Island’s Governor, Ricardo Rosselló, said it was a necessary step given the deficit currently as he petitioned for relief under Title III of a new federal law for insolvent territorial governments, called Promesa which contains some bankruptcy provisions and has never been used before, so there is no road map to follow. Chapter 9 isn’t an option for Puerto Rico since it is a US territory and not a state.
3: Puerto Rico has roughly $70 billion debt obligations to restructure. Its unemployment rate is 11.5 percent. By contrast, when Detroit filed for bankruptcy in 2013, its debt was $18 billion. “The government remains willing to continue to pursue good faith dialogue and negotiations with its creditors,” the Puerto Rico governor said in a letter Wednesday to the chairman of the federal oversight board, José Carrión. Governor Rosselló said he hoped the move to bankruptcy court would “accelerate the negotiation process.”
4: However, a judge still has to approve the bankruptcy filing and the next step will be for the Chief Justice of the Supreme Court, John G. Roberts Jr., to designate a bankruptcy judge to handle the case. Many prominent Wall Street firms own Puerto Rico’s bonds and they don’t want the island to enter bankruptcy proceedings because it could mean they will get paid back far less than what they are owed.
5: Puerto Rico’s latest budget plan includes only $800 million a year to pay back creditors, or a mere 20 percent of what the island had been paying creditors in the past.
6: On the campaign trail, US President, Donald Trump, said he would not “bail out” Puerto Rico and recently repeated that again in a tweet saying there should be no “bailout” for Puerto Rico.
7: Mick Mulvaney, Trump’s budget director, said Wednesday that the administration pushed hard to ensure no federal dollars would go toward paying Puerto Rico’s debts in the latest USD 1.1 trillion Congressional budget deal. However, the House budget approved USD 296 million to help Puerto Rico with medicaid financing to ease its budget emergency at the insistence of top Democratic. Nancy Pelosi.
8: Puerto Rico’s population has declined by 350,000 in the past 10 years as the island’s economic crisis has worsened. Some 45 percent live in poverty on the island and bankruptcy may lead to future cuts in pensions and worker benefits, and possibly a reduction in health and education services.