Puerto Rico is currently preparing itself for lawsuits that its creditor will be imposing after their second default in just five months. According to Governor Alejandro Garcia Padilla, the litigation will be "very costly" for the commonwealth and its creditors. In addition to this, the Governor shares that each dollar it uses to pay its lawyers will be another dollar that's not going to the pocket of its creditors.
While the Justice Department of the island is currently trying to do its part in preparing for the lawsuits that could be filed against them, it will have a very difficult time of being 100 percent prepared. Instead of litigation, the governor has pleaded to US lawmakers to supply them with the tools they need to be able to restructure an astounding $70 billion debt load. At the same time, they are requesting for access to the Chapter 9 bankruptcy laws.
On Monday, majority of the almost $1 billion amount due has been paid of by the US territory to its bondholders. This led them to officially default on two out of the 13 bonds that were already scheduled for payment. These two unpaid bonds included the $35.9 million amount on bonds under the Puerto Rico Infrastructure Financing Authority and the $1.4 million debt on the Puerto Rico Public Finance Corporation boards.
Analysts were quick to assume that these defaults were strategically prepared by the commonwealth to help them create a sense of urgency so they could increase the speed of action by the US Congress. In doing so, they could have their request for Chapter 9 bankruptcy considered as well as the onset of a humanitarian crisis without the need to start of litigation procedures.
Based on more research done, the default was made on debt that was not guaranteed under Puerto Rican Constitution. Moreover, the earlier $329 million interest intended for general obligation bonds still lacked strong legal protections. It was paid in full last Jan. 4, 2016. If a lawsuit would be filed, it would most likely be in the federal courts of San Juan or New York.
