Puerto Rico on Wednesday issued a five-year plan for broadly restructuring its mammoth debts, opening what is likely to be a turbulent new chapter in its efforts to rekindle economic growth and avoid an unprecedented collapse.
The new plan calls for restructuring about $47 billion of Puerto Rico’s $72 billion in bond debt and carrying out an ambitious package of economic changes under the eyes of an independent financial control board. Virtually every element of the plan requires either concessions negotiated from creditors or legislation enacted in San Juan or Washington, suggesting a long and difficult road ahead.
In a live televised speech Wednesday morning, Gov. Alejandro García Padilla said economic revival was “our historic responsibility” and warned that if creditors did not come to the negotiating table, “Puerto Rico will have no choice but to go ahead without them.”
Already, Puerto Rico has had to take “extraordinary measures” to keep from running completely out of cash. The government liquidated the assets of its workers’ compensation fund and two other insurance pools over the summer so it could pay other bills. It has delayed sending people their 2014 income tax refunds until at least February 2016.
Among the most striking aspects of the plan — and likely to be one of the most contentious — is the proposal to restructure Puerto Rico’s general obligation bonds, which were sold to investors with an explicit constitutional promise that timely repayment would take priority over all other expenditures on the island. Puerto Rico stunned investors this summer by defaulting on another type of bond but failing to pay general obligation debt when due is almost unheard of.
“There is a high probability of protracted litigation,” said Ted Hampton, a vice president at Moody’s Investors Service, who cited general-obligation bondholders as especially likely to sue.