14 May, 2017
The board took some control away from local government, which has prompted protests from Puerto Ricans, who say the board - which has been facilitating negotiations between Puerto Rico and its creditors - is valuing investors' interests over those of the islanders.
Puerto Rican police arrested five people on Monday during a general strike and street demonstrations against austerity measures and government spending cuts on the island.
Some of the island's debts will go before a federal bankruptcy court, making it the largest USA government entity to seek such protection from creditors. After years of wrangling with creditors, the island protectorate will now likely be facing even more years in court as the largest USA government entity is in federal bankruptcy court. The idea for opening bankruptcy to states was briefly raised in the Republican-led U.S. House of Representatives after the recession, only to be dismissed by governors who said it would cause investors to demand higher yields on their bonds.
The Oversight Board would need to approve the decision to go forward with a Title III filing, and not everyone is on the same page about its merits.
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. But he said embracing a bankruptcy-like process could be an option if negotiations fail. Given the size of the debt, it would be the largest such insolvency in US history, far outstripping Detroit's $18 billion restructuring in 2013.
Sanchez noted that unlike a regular bankruptcy in the US mainland, a judge can not unilaterally seize any of Puerto Rico's assets and turn them over to bondholders.
The legal proceeding does not mean negotiations toward a consensual restructuring agreement must stop, the governor said in a statement on Wednesday. The plight may serve as a lesson and cautionary tale for bondholders, and complicates the USVI's situation, as Puerto Rico and the U.S. Virgin Islands are close in proximity, and have numerous same problems.
Rosselló said he failed had to persuade the island's major creditors to accept less than they were owed, adding that the government was now facing an onslaught of new lawsuits stemming from a series of defaults.
The board offically invoked the so-called Title III provision, which is akin to bankrupcy, agreeing to the process.
The fiscal turnaround blueprint has been the bane of island creditors, forecasting that Puerto Rico will have only $800 million a year to pay its debt, less than a quarter of what it owes, auguring big haircuts for all bondholders. Insurers of issuer debt have felt a pinch around insuring Puerto Rico's municipal bonds.
Juanita Morales Rosa, a 65-year-old retired teacher, said she depends on a public pension system that is expected to run out of money this year and faces a more than $40 billion deficit.
Other defendants in the COFINA group's lawsuit include Elias Sanchez, Rossello's liaison to the oversight board; Gerardo Portela, director of Puerto Rico's fiscal agent, known as AAFAF; and AAFAF itself.
The situation now heads to federal court, where the struggle between Puerto Rico and its disgruntled creditors will be decided. About $.70 on the dollar was offered to creditors, who were unwilling to go below $.90.