Puerto Rico requests bankruptcy-like restructuring of $70 billion in debt

People carry a large Puerto Rican flag as they protest looming austerity measures amid an economic crisis and demand an audit on the island's debt to identify those responsible in San Juan Puerto Rico Monday

"This bankruptcy process is vital so Puerto Rico can receive the debt relief it was promised", said Eric LeCompte, executive director of Jubilee USA, which promotes debt forgiveness for poor countries.

On Wednesday, the Financial Oversight and Management Board for Puerto Rico announced they had moved to place the USA territory into federal bankruptcy court, making it the largest entity of the USA government to seek refuge from creditors in the courts in history.

Puerto Rico's situation is ugly.

The federal oversight board installed by Congress invoked a quasi-bankruptcy law that puts Puerto Rico's standoff with creditors before a federal judge in San Juan.

While some issuers can solve their fiscal challenges over time, investors will be watching states and localities with mounting financial problems, said Robert Amodeo, head of municipals in NY for Western Asset Management Company.

The historic announcement comes a day after several major creditors sued the USA territory 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.

"It's going to be uncomfortable for some", Barbarosh said. It also armed it with the use of a court-supervised process to restructure the territory's debt.

IL is grappling with more than $129 billion of retirement debt, leaving the state with the worst credit rating in the nation.




Almost half of the people of Puerto Rico live in poverty while child poverty soars at 60 percent.

Aurelius Investment LLC and others who represent those who hold some $1.4 billion in general obligation bonds also filed a lawsuit against Puerto Rico.

"It will be an orderly process that should be better for creditors in the aggregate than a chaotic and uncertain period involving proliferating lawsuits", said Moody's Investor Services analyst Ted Hampton. The governor issued a 10-year spending plan that earmarked $800 million a year to pay interest and principal on bond debt, a fraction of the $35 billion due in such payments over the next decade.

A federal district court judge will now be in charge of the restructuring.

The decision to opt for Title III was also backed by Rossellos predecessor, Alejandro Garcia Padilla, and Rep. Luis Gutierrez, a Democrat from IL.

As businesses and people say goodbye to Puerto Rico, there's even less money to pay back creditors.

The governor did note, however, that negotiations for a consensual restructuring agreement wouldn't come to a halt. As Jeff Mazzella, the group's president, sees it, the oversight board's action "will allow Puerto Rico to rob millions of American retirees and savers who invested in Puerto Rico bonds".

Title III is an in-court debt restructuring process akin to USA bankruptcy protection, as Puerto Rico is barred from traditional bankruptcy because it is a US territory. With the May 1 deadline passed, Puerto Rico is now vulnerable to legal challenges by creditors, with one lawsuit filed early Tuesday morning. Meanwhile, the government will continue to talk to creditors and seek a stay on the almost two dozen lawsuits that the US territory faces.

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