For almost five years, Puerto Rico has been in the middle of a bankruptcy battle. The U.S. territory is currently $70 billion in debt, but now has the potential to decrease that amount to $34 billion with a new restructuring plan signed by U.S. District Court Judge Laura Taylor Swain.
Swain released the ruling on Tuesday, stating, “The provisions of the plan constitute a good faith, reasonable, fair, and equitable compromise and settlement of all claims and controversies resolved pursuant to the plan.”
The restructuring plan comes after years of negotiations between the commonwealth and its financial oversight board, hedge funds, bond insurers, mutual funds, and labor groups.
It marks the largest municipal debt restructuring the U.S. has ever approved as Puerto Rico struggled to recover from deadly acts of nature as well as a pandemic that worsened the economic crisis.
The plan will cut Puerto Rico’s public debt by 80% and, in the process, save its government more than $50 billion in debt service payments.
Three million dollars worth of pension bonds will be forgiven, along with $18.8 billion of general-obligation bonds and $7.4 billion worth of commonwealth-backed securities.
The debt restructuring of some government agencies, like the Puerto Rico Electric Power Authority, which holds the largest debt, is still pending a resolution. For the first ten years after the restructuring, Puerto Rico will have to pay $666 million every year for debt service, considerably less than the original average of $1.6 billion.
Even though Puerto Rico entered bankruptcy in May 2017, it declared that it couldn’t pay its $70 million public debt in 2015. The debt was accumulated through decades of financial corruption and mismanagement.
In 2016, the U.S. Congress created the financial oversight and management board for Puerto Rico.
“The agreement, while not perfect, is very good for Puerto Rico and protects our pensioners, university and municipalities that serve our people,” said Pedro R. Pierluisi, who is the Governor of Puerto Rico. “We still have a lot of work ahead of us.”
