Puerto Rico is set to file the largest public sector bankruptcy in history after vulture capitalist hedge funds that bought big pieces of the island’s $73 billion in defaulted debt for pennies-on the-dollar refused to take $24 billion haircut.
The U.S. territory made its last-ditch offer to try to avoid a May 1 bankruptcy filing, but failed to negotiate a financial restructuring that would force creditors to take a 23 percent loss on their general obligation bonds and a 42 percent loss on their Cofina sales-tax-backed debt, according to EMMA, the Municipal Securities Rulemaking Board website.
Puerto Rico’s bond defaults last summer caused the Obama administration to team-up with a bipartisan majority in Congress to pass “The Puerto Rico Oversight, Management and Economic Stability Act” (PROMESA), which turned over the island’s finances to a federally appointed committee and created a “Title III” bankruptcy process.
Breitbart News reported that the big motivation for taking over America’s worst welfare den was the fear of up to a million Puerto Ricans migrating to the mainland” if hedge fund “vulture capitalist” investors, who bought up the island’s bonds debt at about 30 cents on the dollar, were able to use lawsuits to shake down the U.S. government for a bailout by jeopardizing the island’s ability to pay for schools, police officers and health care.
PROMESA gave the control board defacto authority to sell government assets, consolidate agencies, and fire government workers to restructure the island’s balance sheet. It also put a retroactive stay on bondholder lawsuits to grab assets liens.
One key reason Puerto Rico’s economy has imploded was that the Popular Democratic Party-controlled legislature made Spanish the official language in 1991 for all schools and government use. Partly as a result, 86 percent of the island does not speak English in the home and almost a third of the residents are on welfare. Poor language skills have prevented the reaction of call centers and other U.S. service businesses to Puerto Rico.