In-Depth: The sponsor of this legislation, Rep. Pedro Pierluisi (D-PR), has emphasized the broad support
that this legislation enjoys — including endorsements by the editorial
boards of Bloomberg, the New York Times, the Washington Post.
Additionally, the Fitch Ratings
agency said extending Chapter 9 bankruptcy protections to Puerto Rico
would be a “positive and important development” for the commonwealth
and its creditors.
Of Note: Puerto Rico’s governor Alejandro Garcia Padilla has said
that the commonwealth’s $72 billion debt burden is “not payable” and
could trigger a “death spiral” that drives its economy into a severe
recession. Bankruptcy would assist Puerto Rico in restructuring its debt
to a more sustainable level, but without Congress allowing it to pursue
bankruptcy it would be forced to default.
On August 3, 2015 Puerto Rico defaulted for the first time in its history after managing to pay only $628,000 of a scheduled debt payment of $58 million. Its inability to pay the full amount resulted from a failure of the commonwealth's legislature to appropriate the necessary funds, and "reflects the serious concerns about the commonwealth's liquidity."
There have been several notable Chapter 9 bankruptcies over the years — including by Detroit and Stockton, California — but Puerto Rico’s bonds have been valued at about eight times those issued by Detroit.
Summary by Eric Revell
(Photo Credit: Flickr user vxla)