Anticipating Bankruptcy, Puerto Rico’s Creditors Make Eleventh-Hour Maneuvers

With Puerto Rico on the brink of entering an unprecedented bankruptcy, Wall Street firms with billions of dollars on the line are losing hope of keeping restructuring talks out of the courtroom, the Wall Street Journal reported yesterday. Creditor groups were negotiating this week to reach standstill agreements designed to prolong private negotiations and forestall the need for a court-supervised restructuring proceeding. But major creditors hadn’t signed forbearance agreements as of Monday evening, hours before the expiration of a key deadline, heightening the likelihood that federal oversight officials will see no choice but to place the struggling U.S. territory under bankruptcy protection. Starting today, a legal shield protecting Puerto Rico from debt-related lawsuits vanishes, exposing the territory and Gov. Ricardo Rosselló to rulings that could favor one creditor group over another. The federal board overseeing its restructuring could also invoke a quasi-bankruptcy proceeding to keep the legal stay in place. Negotiations between the board, the territory and its creditors have revolved around a fiscal plan that allocates roughly $800 million a year, less than a quarter of what is owed, to creditors over the next decade. But creditors — mainly hedge funds, mutual funds and bond insurers — have criticized the fiscal plan, saying that it fails to comply with directives issued by Congress when lawmakers installed the oversight board and erected a binding legal framework for the adjustment of Puerto Rico’s debts.