Scarinci Hollenbeck, LLC, LLCScarinci Hollenbeck, LLC, LLC

Firm Insights

Puerto Rico Officially Files For Bankruptcy

Author: Joel R. Glucksman

Date: May 23, 2017

Key Contacts

Back

After careful consideration, the Caribbean island of Puerto Rico officially filed for the equivalent of bankruptcy May 3, 2017.

According to USA Today, this decision will likely spark a “fierce legal battle” as it may put Puerto Rico’s citizens, creditors and workers in jeopardy.

New Decision Expands Liability Under Clean Water Act
Photo courtesy of Mink Mingle (Unsplash.com)

Restructuring to eliminate debt

After years of talking with bondholders and insurers, Puerto Rico is making this move in an effort to eliminate nearly $70 billion in debt. According to Bloomberg Markets, this will be the biggest debt restructuring process ever undertaken by a U.S. governmental entity.

“We reached this decision because it protects the best interests of the people of Puerto Rico,” Governor Richard Rossello said in a statement.

While the mayor believes this is the best move for Puerto Rico to make, Brad Setser, senior fellow at the Council on Foreign Relations, addressed that it may cause an uproar.

“An orderly process for working out Puerto Rico’s debt trouble provides the best hope for Puerto Rico and also the best chance for most creditors to emerge better off,” he told Bloomberg in a telephone interview. “But clearly there’s going to be fights between different groups of creditors.”

Because Puerto Rico is a U.S. territory, it is restricted from using traditional bankruptcy. According to Fox News, the case was instead filed under Title III of the PROMESA law. This process utilizes a debt restructuring plan that is similar to that of bankruptcy protection. With this process, a creditor cannot seize any of Puerto Rico’s assets without confirmed authorization provided by the control board. Additionally, this process gives Puerto Rico the ability to force discounts on credit recoveries. This could work in its favor, but it can also scare potential investors away, ultimately prolonging the suffering.

“The governor needed to show that his primary allegiance lies with the citizens of Puerto Rico, and that was the justification for the filing,” David Tawil, president of Maglan Capital told Fox News. “I’m not sure whether bondholders are going to get any better treatment or recovery under this course of action.”

What’s next for Puerto Rico?

Unlike most bankruptcy cases, this process will not be controlled by a bankruptcy judge. On Friday May 5, Chief Justice John Roberts of the United States Supreme Court appointed District Court Judge Laura Taylor Swain of the Southern District of New York to handle the Puerto Rico restructuring.  She is a judge with significant experience in overseeing bankruptcy and financial crime cases.

Currently, the citizens of Puerto Rico are leaving the island and heading to the States at an alarming rate. According to CNN Money, the island’s total population has dropped by 350,000 since 2007, and this trend of decline is likely to keep up.

When it comes to the unsecured bondholders of Puerto Rico, they may “suffer significant cuts,” according to USA Today. The major investors are upset because they’re claiming that they made the investments before the island was even eligible for bankruptcy. This may cause conflict, and some believe that lawsuits are bound to surface.

However, Ted Hampton, vice president of Moody’s Investor Service, stated that the governor’s decision to file for bankruptcy was a step in the right direction. He believes that requesting bankruptcy protection will streamline the process for creditors, instead of creating a chaotic period that enables parties to form lawsuits.

Is there a chance that Puerto Rico could sell off some of its assets to pay off the debt? Yes, but it’s not likely. For example, USA Today brought up Detroit’s $18 billion debt, and how the city negotiated a deal and collected money from the state of Michigan and other private donors for relief.

Unfortunately, Puerto Rico is under much larger-scaled debt and scrutiny. This could make it difficult for the island to make a similar deal. Additionally, it’s not clear how long the court proceeding would last. It seems as though having the court oversee the island’s debt restructuring is its only choice.

No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.

Scarinci Hollenbeck, LLC, LLC

Related Posts

See all
Corporate Transactions: Best Practices for Successful Deals post image

Corporate Transactions: Best Practices for Successful Deals

Corporate transactions can have significant implications for a corporation and its stakeholders. For deals to be successful, companies must act strategically to maximize value and minimize risk. It is also important to fully understand the legal and financial ramifications of corporate transactions, both in the near and long term. Understanding Corporate Transactions The term “corporate […]

Author: Dan Brecher

Link to post with title - "Corporate Transactions: Best Practices for Successful Deals"
How to Conduct a Fair and Legal Employee Termination in 2025 post image

How to Conduct a Fair and Legal Employee Termination in 2025

Ongoing economic uncertainty is forcing many companies to make tough decisions, which includes lowering staff levels. The legal landscape on both the state and federal level also continues to evolve, especially with significant changes to the priorities of the Equal Employment Opportunity Commission (“EEOC”) under the Trump Administration. Terminating an employee is one of the […]

Author: Angela A. Turiano

Link to post with title - "How to Conduct a Fair and Legal Employee Termination in 2025"
Admin Dissolution for Annual Report: What You Need to Know post image

Admin Dissolution for Annual Report: What You Need to Know

While filing annual reports may seem like a nuisance, failing to do so can have significant ramifications. These include fines, reputational harm, and interruption of your business operations. In basic terms, “admin dissolution for annual report” means that a company is dissolved by the government. This happens because it failed to submit its annual report […]

Author: Dan Brecher

Link to post with title - "Admin Dissolution for Annual Report: What You Need to Know"
What Is Antitrust Litigation Law? post image

What Is Antitrust Litigation Law?

Antitrust laws are designed to ensure that businesses compete fairly. There are three federal antitrust laws that businesses must navigate. These include the Sherman Act, the Federal Trade Commission Act, and the Clayton Act. States also have their own antitrust regimes. These may vary from federal regulations. Understanding antitrust litigation helps businesses navigate these complex […]

Author: Robert E. Levy

Link to post with title - "What Is Antitrust Litigation Law?"
Dissolving Your Business: Essential Legal Steps to Protect Your Interests post image

Dissolving Your Business: Essential Legal Steps to Protect Your Interests

If you’re considering closing your business, it’s crucial to understand that simply shutting your doors does not end your legal obligations. Unless you formally dissolve your business, it continues to exist in the eyes of the law—leaving you exposed to ongoing liabilities such as taxes, compliance violations, and potential lawsuits. Dissolving a business can seem […]

Author: Christopher D. Warren

Link to post with title - "Dissolving Your Business: Essential Legal Steps to Protect Your Interests"
The Role of Corporate Restructuring in Mergers & Acquisitions post image

The Role of Corporate Restructuring in Mergers & Acquisitions

Contrary to what many people think, corporate restructuring isn’t all doom and gloom. Revamping a company’s organizational structure, corporate hierarchy, or operations procedures can help keep your business competitive. This is particularly true during challenging times. Corporate restructuring plays a critical role in modern business strategy. It helps companies adapt quickly to market changes. Following […]

Author: Dan Brecher

Link to post with title - "The Role of Corporate Restructuring in Mergers & Acquisitions"

No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.

Sign up to get the latest from our attorneys!

Explore What Matters Most to You.

Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.

Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.

Let`s get in touch!

* The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form. By providing a telephone number and submitting this form you are consenting to be contacted by SMS text message. Message & data rates may apply. You can reply STOP to opt-out of further messaging.

Sign up to get the latest from the Scarinci Hollenbeck, LLC attorneys!