Puerto Rico requests bankruptcy protection for public debt

Puerto Rico requests bankruptcy protection for public debt

Puerto Rico, owing $73 billion to creditors, filed for a form of bankruptcy protection Wednesday.

According to the US Census Bureau, 46 percent of Puerto Rico's residents live below federal poverty levels, compared to the national average of 14 percent and 36 percent in Detroit. Some creditors fear Puerto Rico will seek to have the case handled in the Southern District of NY. By comparison, the USA city of Detroit had less than $20 billion in debts when it filed for bankruptcy in 2013, which was the biggest US municipal bankruptcy ever.

One building contractor who was owed more than $1 million received two payments from the Government Development Bank for a total of $164,030 - only to see them bounce.

More than 2,000 investors have already filed claims based on representations from the island broker-dealers that the bonds were safe.

The case isn't formally called bankruptcy because Puerto Rico is barred from using Chapter 9, which is usually used by local governments seeking protection.

Investors had bought the bonds in the belief that Puerto Rico, like US states, would not be allowed to fail and the debt would be protected.

Puerto Rico and its general obligation bondholders, whose $18 billion of debt is backed by the island's constitution, were negotiating until the last minute.

Trading in the stocks of the three main insurers of Puerto Rico's bonds on Tuesday was mixed.

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Puerto Rico Chief of Staff William Villafane told The Associated Press just hours before the freeze expired that the government preferred to reach a deal with bondholders.

A separate bondholder group, the Cofina Seniors Coalition, had a different take on the Title III decision, calling it "sound public policy" that respects congressional intent and supports an orderly debt restructuring process.

"At least essential services would be guaranteed", he said.

Rossello said a federal control board overseeing the island's finances agreed with his request to put certain debts before a federal bankruptcy court.

The legal proceeding does not mean negotiations toward a consensual restructuring agreement must stop though, the governor said.

"Puerto Rico is no longer shielded from creditors rushing to the courthouse to lay claim to its assets - that includes the beaches, pieces of art, historical furniture and any assets whether they are nailed down or not". He appeared to be referring to the extraordinary power Puerto Rico will now have in court to unilaterally impose big losses on creditors.

The board members and others authorities could not be immediately reached for comment as the lawsuits landed before dawn.

The decision to resolve a portion of the debt in court is the largest effort ever made by a USA government to shield itself from creditors. In crafting the framework of a Title III proceeding, Congress expressly incorporated certain sections of the Bankruptcy Code and created a quasi-Chapter 9, which governs the adjustment of debts for United States municipalities, framework that will govern the Commonwealth's petition.

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