Puerto Rico’s Descent into Bankruptcy Divides Wall Street

Puerto Rico’s creditors are preparing for a lengthy fight to maximize their recoveries after its slide into bankruptcy, but other Wall Street investors are rooting for the U.S. territory to succeed in driving down its $73 billion debt load, The Wall Street Journal reported yesterday. Creditors holding Puerto Rico’s municipal bonds argue that the territory won’t regain access to the high-yield credit markets if a court writes down the value of its bonds too deeply, according to court filings and congressional testimony. Puerto Rico was cut off from the credit markets in 2015, and restoring market access is a must for the federal oversight board handling its financial restructuring. But investors who don’t have bonds at risk in the court-supervised process are advocating an aggressive debt-restructuring to free up taxpayer resources for other purposes, such as infrastructure investments, and pave the way for its bonds to begin performing again. The more Puerto Rico is able to shrink its debt burden, the more money presumably will be available to pay back its restructured bonds, improving those securities’ performance in the market. Current creditors, on the other hand, say Puerto Rico should repay as much of its $73 billion in debt as it can to placate investors, reaffirm its willingness to pay and entice them to lend again. Yesterday, officials in Puerto Rico announced that its bankruptcy proceedings will begin on May 17 in San Juan with a series of requests for managing the case as the Commonwealth starts the process of restructuring its $70 billion in debt under Title III of PROMESA. The bankruptcy will be overseen by U.S. District Judge Laura Taylor Swain of the Southern District of New York.