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Puerto Rico exits bankruptcy, future debt payments revised

A federal judge approved a new plan that will restructure the island’s bond debt going forward.

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Judge Laura Taylor Swain ruled in favor of a debt adjustment plan on Tuesday that will boost Puerto Rico’s economy and slash its debt of over $50 billion.

Swain oversaw the debt adjustment process for five years, as Puerto Rico declared bankruptcy in 2015, and then fell further into financial struggle with damage left by hurricanes.

Puerto Rico’s debt revision marks the largest economic restructuring in U.S. history.

Negotiations between the island’s Financial Oversight and Management Board and the government led to their bond debt being cut by 80%, the Board wrote in a letter.

The Oversight Board will be responsible for certifying a repayment budget for Puerto Rico and help the island achieve financial stability. An end to bankruptcy will permit the island’s government to free up funding to now go towards public services.

“The Oversight Board welcomes Judge Swain’s decision. We owe Judge Swain a debt of gratitude for her tireless leadership, her exemplary diligence, and her dedication to a fair solution to Puerto Rico’s debt crisis,” they said.

Puerto Rico, before the formation of the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA), once repaid debt of 25 cents per dollar. The adjustment plan lowers debt repayment to now 7 cents of every dollar owed.

“We have accomplished what many thought was impossible. Of every dollar in taxes and fees collected by the commonwealth, just 7.2 cents will go to debt service,” said Oversight Board Executive Director Natalie Jaresko.

Jaresko said the Oversight Board will implement borrowing safeguards for Puerto Rico as they repay the new revised debt. The board will only approve long-term borrowing for capital improvement projects, and will prevent overspending.

Those who opposed the adjustment plan argue that Puerto Rico does not have enough financial resources and were against budget cuts to sustain debt repayment through 2034. 

The island’s revised debt repayment plan will go into effect on March 15, unless a federal appeal were to occur.

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