Puerto Rico’s Bankruptcy Is Ending. What Comes Next?
Puerto Rico racked up $74 billion of debt through years of borrowing to cover operating expenses as its economy shrunk.
Photographer: Xavier Garcia/BloombergThe biggest bankruptcy ever in the municipal debt market is on a path to resolution, now that a U.S. judge has approved a restructuring plan for Puerto Rico. Still, there are plenty more challenges ahead for investors, the island’s still-bankrupt electric utility and its beleaguered residents. Even with a sharp reduction in debt payments, the key issue for Puerto Rico is whether it can turn around an economy that’s been shrinking for years amid a steady loss of population.
The debt restructuring -- an agreement between Puerto Rico’s government, bondholders, insurance companies, vendors and labor groups -- will erase $33 billion of debt and other obligations, including the cutting of $22 billion of bonds to $7.4 billion. It surpasses Detroit’s $18 billion bankruptcy in 2014, previously the largest. When Puerto Rico’s governor announced in 2015 that the commonwealth, a Caribbean island that is a U.S. territory, could not repay what it owed, the debt of the government and the agencies and authorities it controlled totaled $74 billion.