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A federal judge on Tuesday approved a restructuring plan for Puerto Rico‘s debt in a landmark ruling aimed at revitalizing the Commonwealth’s economy and reducing its $135 billion in liabilities.
In May 2017, Puerto Rico filed for protection under a bankruptcy-like law known as Title III in order to relieve a debt that included more than $55 billion in underfunded pension obligations.
A historic deal for a historic debt
A federally appointed financial oversight board proposed a debt adjustment plan that incorporates commercial agreements among a number of creditors and seeks to encourage new investments to help the island’s economy.
The plan cuts debt by 80%, reducing $33 billion in bond liabilities to $7 billion, in a case that would have racked up nearly $1 billion in legal fees, The New York Times reported.
The agreement indicates that $21 billion in general obligations, Public Buildings Authority (PBA) and Retirement Systems Administration (RSA) bonds, as well as several million dollars in debts to government contractors, will be cut.
After Puerto Rico became the first U.S. territory to file for bankruptcy, U.S. District Judge Laura Taylor Swain of the Southern District of New York ended five years of litigation by approving the board’s proposal.
Pedro R. Pierluisi said in a statement posted on his official Twitter account that the agreement reduces Puerto Rico’s debt “to a sustainable level” that will facilitate the island’s economic recovery.
Pierluisi also said that although the agreement “is not perfect, it is very good for Puerto Rico and protects pensioners, the university and municipalities.”