What has happened so far in court for Puerto Rico’s debt restructuring process
The situation of Puerto Rico’s debt continues to develop following the decision by the Puerto Rican government and Financial Oversight & Management Board to file for bankruptcy in a US District Court. The decision, announced on May 3, follows the end of the stay of lawsuits against the territory, which ended on May 1.
Following the end of the freeze of lawsuits, Puerto Rico was staring down a large amount of debt, and a large number of creditors, all interested in receiving their money back. There were many months of discussion between the government and the creditors, in an attempt to find a solution that worked for all. There was no agreed upon solution, so some creditors turned to fight with each other, aiming for a higher spot on the repayment list.
The Puerto Rican government filing for bankruptcy renewed the hold on lawsuits, and the Rossello administration made the statement that they did not plan on asking a judge for a ruling anytime soon, and planned to continue discussing options with creditors. However, on Wednesday, May 17, hearings were held to begin the process of restructuring Puerto Rico’s debt. One particular portion of the debt is important to the administration and the citizens: the pension system, which has been specifically included in the bankruptcy, along with a highway agency. Judge Laura Taylor Swain has been appointed to hear the case and create a ruling later on.
This case holds great importance outside of Puerto Rico, as well. As a territory, Puerto Rico, like states, cannot file bankruptcy under Chapter 9 Municipal Bankruptcy provision, Puerto Rico filed through PROMESA, which has given the territory many of the same tools to handle debt that cities and counties have. This case therefore is the first of this magnitude, with the former largest debt restructuring court case involving the city of Detroit. Some believe that filing for bankruptcy will only extend the debt crisis and hurt the people, but Governor Rosselló stated that they “have reached this decision because it protects the best interests of the people of Puerto Rico.”