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Puerto Rico announces huge, historic debt restructuring

Puerto Rico's congressionally mandated PROMESA financial oversight board filed for Title III bankruptcy-type protection from creditors in the United States Court for the District of Puerto Rico in the early morning of May 3.

Simon Johnson, a professor of entrepreneurship at the MIT Sloan School of Management, warned Tuesday that failure to activate Title III would result in "chaos", as creditors filed lawsuits in multiple courts.

Puerto Rico announced a historic restructuring of its public debt on Wednesday, touching off what may be the biggest bankruptcy ever in the $3.8 trillion US municipal bond market.

"We would agree there is a case to be made here", said Keefe Bruyette & Woods analyst Chas Tyson, who follows Puerto Rico. This could pave the way for what could be the largest-ever bankruptcy case involving a USA local government entity, Efe news reported.

"Getting involved in the weeds, in the details, is for the board to do", Bishop said.

People carry a large Puerto Rican flag as they protest looming austerity measures amid an economic crisis in San Juan, Puerto Rico on Monday.

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. "They are autonomous for that very goal - so that no political entity can influence them on which direction they go".

Rosselló said through the twitter account of the governor's office that the Puerto Rico Oversight Board would apply for Title III in the near future.

After almost two years of missed payments and delayed actions, Puerto Rico is bumping up against another deadline as it tries to grapple with tens of billions of dollars of debt. The New York Times reports that the filing includes $74 billion in debt and $49 billion in pension obligations. The voluntary filing under Title III would preclude those lawsuits while allowing the possibility of consensual negotiations to continue.

Natural Resources already held a hearing this year about PREPA, Puerto Rico's debt-strapped power utility. The filing is the largest municipal bond bankruptcy in history, and America's third largest bankruptcy, behind only the $691 billion filing by Lehman Brothers and the $328 billion bankruptcy of Washington Mutual. "The move enables Puerto Rico to freeze numerous lawsuits, maintain essential services for its residents, and rely on a court-driven restructuring process to objectively determine respective creditors' rights".

The island has been mired in recession for over 10 years, causing many Puerto Ricans to migrate to the 50 states. "There were 18 government agencies who were issuers with different securities, different collateral, with bondholders having interests against each other", he said.

Almost half of the people of Puerto Rico live in poverty while child poverty soars at 60 percent.

Both Puerto Rico and Detroit had been effectively stripped of local control over their finances by the time each sought protection from creditors. As Jeff Mazzella, the group's president, sees it, the oversight board's action "will allow Puerto Rico to rob millions of American retirees and savers who invested in Puerto Rico bonds".

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