Puerto Rico files for biggest United States municipal bankruptcy

09 May 2017, 07:57 | Andres Norman

Puerto Rico files for biggest United States municipal bankruptcy

Puerto Rico's Governor Ricardo Rossello addresses the audience during a meeting of the Financial Oversight and Management Board for Puerto Rico at the Convention Center in San Juan

It is similar to Chapter 9 of the U.S. Bankruptcy Code, which is used by municipal and county governments as well as other public institutions and entities.

Rossello said one of the lawsuits sought to claim all revenues generated by the island's Treasury Department for bondholders. As of September 30, Puerto Rico and its various bond issuing authorities had missed almost $1.5 billion in debt service payments.

The phasing out in 2006 of Internal Revenue Service tax incentives offered to USA companies operating on the island also hurt because firms moved elsewhere, resulting in job losses. "It is time for the government and the creditors to move forward in restructuring the public debt", she said.

Hedge-fund creditors holding defaulted general obligation bonds were on the verge of completing a consensual agreement late Tuesday before the oversight board intervened to stop negotiations, according to people familiar with the matter.

Unlike the 50 states, Puerto Rico is not allowed to restructure its debt under Chapter 9 bankruptcy protection because it is a US territory.

But unlike Detroit, which declared itself broke to force creditors to write off some debt, as a commonwealth, the island has not been able to file for bankruptcy using normal United States financial regulations.

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Puerto Rico's economy has been struggling for years, unable to recover from disappearing tax breaks that buoyed its manufacturing sector and its government's lavish spending habits.

Caribbean Business reported in September 2016 that the Federal Bureau of Investigations (FBI) had allegedly requested documents from bond underwriters as part of a probe into a $3.5 billion general-obligation bond issue of 2014, and a $600 million Puerto Rico Electric Power Authority bond issue in 2013.

The island has been mired in recession for over 10 years, causing many Puerto Ricans to migrate to the 50 states.

Puerto Rico is asking a federal judge for permission to file for bankruptcy, which is being opposed by its numerous creditors, including several Wall Street banks.

As businesses and people say goodbye to Puerto Rico, there's even less money to pay back creditors. The island territory has been mired in economic crisis for a decade and has seen its population shrink by a tenth over that time as residents move to the mainland US. "There were 18 government agencies who were issuers with different securities, different collateral, with bondholders having interests against each other", he said. The next step is for US Supreme Court Chief Justice John Roberts to choose a judge to handle the bankruptcy case. Sanchez disputed that opinion, saying that a court-supervised restructuring would actually provide more comfort to investors.

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, May 1, 2017. The previous governor announced that the $70 billion debt load was unpayable and needed restructuring. The territory had planned to cover less than a quarter of the debt that is due over the next 10 years.

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