Years of debt accumulation, devastating hurricanes, political turmoil and a long pandemic are some of the challenges that Puerto Rico has faced while seeking approval from the US Justice to restructure its debt.
Federal Judge Laura Taylor Swain’s decision to give the green light to the island’s plan to emerge from bankruptcy ends almost five years of litigation and will facilitate its return to the capital markets.
Puerto Rico accumulated unsustainable levels of debt in the years leading up to 2017, when it declared bankruptcy and began the process to restructure its multimillion-dollar debt of more than $70 billion.
At that time, the island was mired in a serious economic crisis. It had a poverty rate of 45%, unemployment of 12% – which was twice the average for the United States -, and its population emigrated massively.
Tuesday ‘s so-called Debt Adjustment Plan , proposed by a federally appointed financial oversight board, incorporates deals among a host of creditors, reducing $33 billion in bond debt to $7 billion. Annual debt payments would be reduced by 80%.
The plan also includes protections that limit how much debt Puerto Rico can take on in the future, according to the Reuters news agency.
Coming out of bankruptcy will allow Puerto Rico to overcome default, encourage new investment to boost its exhausted economy, and rehabilitate its infrastructure, including its weak power grid.
“Broad but not universal support”
In announcing her decision, Judge Swain noted that the plan has “broad but not universal support,” with many public workers and retirees, among others, disagreeing with certain aspects.
The oversight board has said that under the plan most retired officials will receive their full pensions. However, the plan ends defined benefit retirement programs that cover tens of thousands of teachers and judges.
The board said in a statement Tuesday that it welcomed Swain’s decision, but that Puerto Rico “needs to continue reforming itself to ensure a prosperous future.”
And he added that this ruling “does not preclude further investigation, whether through regulatory, law enforcement or civil litigation channels, into the origins of Puerto Rico’s debt crisis.”
The debt adjustment plan is expected to take effect on March 15. The oversight board will remain in place until Puerto Rico has had four consecutive years of balanced budgets.
The case has cost nearly $1 billion in legal fees , something that has also drawn criticism.
Although it is a huge restructuring, this is not the first time that a US territory has sought to get out of its debt under court supervision.
The city of Detroit (Michigan), Jefferson County (Alabama), Orange County and the cities of Stockton, San Bernardino (California), have taken the same path in the past to clean up their finances, although Puerto Rico’s is the largest local debt restructuring in US history.
reactions
The Fiscal Oversight Board (JSF) stated that, with the approval of the Adjustment Plan, “today a new chapter begins in the history of Puerto Rico.”
For his part, the Governor of Puerto Rico, Pedro Pierluisi, applauded Judge Swain’s decision through a thread of seven tweets, in which he spoke of a “transcendental moment” for the island and said that, although the agreement ” It’s not perfect, it’s very good for Puerto Rico.”
