On May 3, 2017, the Financial Oversight and Management Board for Puerto Rico (the "Oversight Board"), acting on behalf of the cash-strapped Commonwealth of Puerto Rico (the "Commonwealth"), filed for bankruptcy protection in the District Court for the District of Puerto Rico.
An appeal for court protection was expected, at least among municpal bond market participants who had been closely following Puerto Rico's failed efforts to restructure its debts.
Puerto Rico's federal oversight board filed with USA court to use bankruptcy-like proceedings to slash the island's $70 billion debt after failing to strike an agreement with bondholders, pushing the territory toward the biggest restructuring ever by a US state or local government.
Puerto Rico is entering uncharted territory.
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. The outcome of its case could help determine where and how the deep financial troubles of certain states, such as IL, are resolved, said NYT.
The move comes a day after several major creditors sued the US territory and its Governor Ricardo Rossello over defaults on the island's $70 billion in bonds.
Rossello said one of the lawsuits sought to claim all revenues generated by the island's Treasury Department for bondholders.
Today, Title III may be all that stands between order and the kind of economic chaos suffered by the people of Germany during the Weimar period following World War I. Understandably, investors who are affected by the crisis are greatly concerned about what will happen next.
Rossello said the debts of some agencies will be restructured in court, while others will be resolved through ongoing negotiations with bondholders.
"Furthermore", he said, "it cements the political precedent set by Congress for high-spending states with unsustainable debts to ultimately follow suit". Rosello has said the island will continue to make approximately 20% of it debt payments moving forward.
Puerto Rico's collapse also shows the pressure than can emerge when retirement systems run out of cash.
Puerto Rico has over $70 billion in bond debt and $50 billion in pension obligations.
Ted Hampton, an analyst at Moody's Investor Service, says the bankruptcy process is a "positive step". As of September 30, Puerto Rico and its various bond issuing authorities had missed almost $1.5 billion in debt service payments. The judge will be in charge of coming up with an orderly restructuring plan.
Some bondholders are expected to file legal challenges to Rossello's decision but can not do so for 120 days.
For now, island officials have said they are committed to "good-faith dialogue and negotiations". "A long and drawn-out battle with creditors will be catastrophic for Puerto Rico and its people", he said. Bondholders and bond insurers reached agreements that resulted in recoveries of 74 percent for unlimited-tax general obligation bonds and 34 percent for limited-tax GO bonds.
Puerto Rico's labor participation rate is only about two-thirds that of the US mainland.