US Bailout, Bankruptcy Procedures Unlikely to Improve Puerto Rico Debt

© AP Photo / Ricardo ArduengoIn this May 4, 2012 photo, the flags of Puerto Rico and the U.S. wave behind an English one-way traffic sign in Guaynabo, Puerto Rico, one of only a few places in Puerto Rico with street signs in English
In this May 4, 2012 photo, the flags of Puerto Rico and the U.S. wave behind an English one-way traffic sign in Guaynabo, Puerto Rico, one of only a few places in Puerto Rico with street signs in English - Sputnik International
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The US government will not bail out Puerto Rico, but allowing the island territory to file for bankruptcy is unlikely solve its heavy debt burden, Moody’s Investor Service said in a statement on Wednesday.

WASHINGTON (Sputnik) — On June 29, 2015, Governor Alejandro Garcia Padilla announced that Puerto Rico could not pay its $73 billion debt and would soon run out of money to operate the government.

“Moody's ratings assume no US federal payment on Puerto Rico's (Caa3 negative) debt, and any effort by the federal government on the commonwealth's behalf would have marginal near-term effects,” Moody’s said in a new report.

Because of Puerto Rico’s unique status as United States territory, the US Congress must approve of debt restructuring under Chapter 9 of the Bankruptcy Code.

However, Moody’s said Chapter 9 is also unlikely to resolve Puerto Rico’s debt problem.

"Since Chapter 9 is unlikely to be a viable way to achieve a consolidated restructuring of all the commonwealth's debt, bankruptcy authorization would not be sufficient by itself to manage Puerto Rico's current pressures," Moody’s explained.

Moody’s stated the possibility of default as well as restructuring of debt obligations creates doubts that bond holders will be paid in full on a number of Puerto Rican debts and utility bonds.

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