Heavily Indebted Puerto Rico Files for Bankruptcy

Last year, the US Congress gave Puerto Rico an ability to file for bankruptcy under a law called the Puerto Rico Oversight, Management and Economic Stability Actor or PROMESA-which means promise in Spanish. Puerto Rico, the board decided last week, will raise water rates on consumers, liquidate its decades-old industrial development bank and seek concessions from creditors of additional government agencies.

Gov. Ricardo Rossello said Wednesday that a federal control board overseeing the island's finances has agreed with his request to put the debts before a court. The outcome of its case could help determine where and how the deep financial troubles of certain states, such as IL, are resolved, said NYT.

"We're going to protect our people", he said hours after the USA territory was hit with multiple lawsuits from creditors 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.

"They're going to need them again at some point", he said. It also armed it with the use of a court-supervised process to restructure the territory's debt. He said he did not yet have details on the breakdown of those debts. Puerto Rico, an island in the Caribbean that is about the size of CT with half its gross domestic product, needs billions to stimulate its economy and upgrade its infrastructure, including its water and electrical delivery systems as well as waste collection.

Overall, Puerto Rico is facing $73 billion in debt.

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While it was not immediately clear just how much of the US -colonized island nation's $70 billion of debt would be included in the bankruptcy filing, the case is sure to dwarf Detroit's insolvency in 2013.

Ted Hampton, an analyst at Moody's Investor Service, says the bankruptcy process is a "positive step". The stay prevented the island from being sued for failing to pay its debt payments, buying Puerto Rico time to work with creditors on a restructuring plan. This is a debt restructuring plan that is carried out under the auspices of the court.

The governor did note, however, that negotiations for a consensual restructuring agreement wouldn't come to a halt. The financial collapse promises to impose deep losses on bondholders who for years snapped up Puerto Rico's securities in the hope a bankruptcy wasn't a legal option for Puerto Rico. "Make no mistake: The board has chosen to turn Puerto Rico into the next Argentina". Puerto Rico was authorized to take this legal route under a restructuring plan adopted by Congress past year. The certification includes assertions that: (a) the Commonwealth made good-faith efforts to reach a consensual restructuring its creditors; (b) a Title III proceeding is necessary to protect citizens of Puerto Rico and is in the best interest of the Commonwealth's creditors; and (c) a Title III filing should not preclude continued efforts to reach consensual debt restructuring with creditors.

Instead, Puerto Rico will petition a judge for relief under a new federal law for insolvent territorial governments, called Promesa.

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