Puerto Rico’s fiscal turmoil took a turn for the worse yesterday, after the WSJ reported that the commonwealth’s fiscal agent has hired a well-known restructuring law firm, raising the prospect that the financially troubled island is preparing to revamp its finances.
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The Government Development Bank for Puerto Rico, which oversees all of the commonwealth’s debt deals, announced it had hired restructuring lawyers at white-shoe New York law firm Cleary Gottlieb Steen & Hamilton.
“It is unclear what Cleary Gottlieb’s role will be for the Government Development Bank for Puerto Rico, which announced in early March it is working with a unit of restructuring adviser Millstein & Co. to analyze its liquidity, debt load and cash flow as it tries to boost its finances.”
Cleary, is a well known specialist law firm which has represented many financially challenged government clients in the past, including Greece, Iraq, Iceland and Argentina.
The news spells trouble for Puerto Rico bondholders who stand to suffer large losses if the government is successful in restructuring its debt load.
There is added concern for investors because, unlike Detroit and other United States municipalities, Puerto Rico cannot file for federal bankruptcy protection, making the prospect of a restructuring by the commonwealth potentially even more uncertain to creditors because there is no clear template.
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Puerto Rico GDB says “In March of last year, $241 million from the Debt Redemption Fund went into the General Fund” #muniland
— Cate Long (@cate_long) April 8, 2014
Confirmed Puerto Rico March 2014 general fund revenues = $785 million. Prior year March revenues = $1,057 million. Huge drop #muniland
— Cate Long (@cate_long) April 8, 2014
*ILLINOIS HOUSE OF REPRESENTATIVES APPROVES CHICAGO PENSION BILL 73-41
— Brian Chappatta (@BChappatta) April 8, 2014