Puerto Rico Debt Crisis: A Timeline

2018

November — First Restructuring of Puerto Rico Debt Post-Bankruptcy Filing (Government Development Bank Debt Restructuring): Puerto Rico’s Government Development Bank (GDB) announces the exchange of its bonds for $2.6 billion of new securities, after restructuring about $4 billion of GDB debt. The debt swap is a first for the island after its 2017 bankruptcy filing.

October 23 — In Latest Certified Fiscal Plan, FOMB Projects Large Puerto Rico Government Surpluses: In the 10/23/19 FOMB certified Fiscal Plan for the Commonwealth of Puerto Rico, the plan projects a $6.33 billion government surplus available from fiscal year 2018 to fiscal year 2019 even after paying debt service. The plan projects that the government will have a surplus of $17 billion through 2023. The plan unrealistically forecasts 10% of Medicaid funding for the island in the second half of the fiscal plan period based on the argument that the U.S. Congress has yet to approve funding for those later years.

August — Puerto Rico’s Economy Continues to Recover; Better-Than-Expected Sales-Tax Revenues Reported: Puerto Rico’s economic recovery continued to gain steam, with seven straight months of improvement in the Government Development Bank’s (GDB) Economic Activity Index (EAI) as well as better-than-expected sales-tax revenues.

August 8 — U.S. Appeals Court Rules that Creditors of PREPA Are Not Barred From Seeking Stay Relief: The U.S. Court of Appeals for the First Circuit vacated a lower court ruling denying a request for relief from the automatic stay, upholding Puerto Rico Electric Power Authority (PREPA) bondholders and bond insurers’ rights to obtain relief from the bankruptcy stay, so that they can seek placement of the utility into receivership.

August 7 — Title III Court Rules That the Oversight Board Can Make Binding Policy Choices through Fiscal Plans and Budgets: Judge Laura Taylor Swain, overseeing the Commonwealth’s Title III bankruptcy case, rules that PROMESA allows the Oversight Board to make binding policy choices for the Commonwealth through its powers relating to fiscal plans and budgets, notwithstanding the objections of the island’s government.

July 5 — External Auditors Unable to Verify PR Financial Statements: The Puerto Rico government submitted its consolidated fiscal year 2014-2015 financial statement years past deadline. External auditors could not verify that the information provided in the document was reliable.

May 31 — Emergency Aid Approved: The Federal Transit Administration announces plans to allocate $223.5 million of emergency relief funds to Puerto Rico public transportation systems. Separately, FEMA awards nearly $220 million in grants to the Puerto Rico government and municipalities, out of $2.2 billion its Public Assistance program has obligated to the island.

May 30 — $6.1b Surplus Estimated: FOMB certifies another revised six-year fiscal plan that reduces the projected pre-debt surplus to $6.1 billion.

May 23 — Fiscal Plan Challenged in Court: Complaint challenging legality of the fiscal plan, re-filed by Assured Guaranty, cites violations of PROMESA and the U.S. Constitution, including failure to distinguish essential and nonessential expenses, disrespecting lawful debt priorities and liens, allowing agency funds to be diverted to other agencies or the Commonwealth, and failing to comply with the U.S. Constitution’s contracts, takings, and due process clauses.

May 20 — FOMB Waives Labor Provisions in Fiscal Plan: FOMB agrees to waive the provisions in the certified Fiscal Plan, calling for the abolition of the government-mandated, year-end bonus and reduction of the island’s mandatory 27 days of vacation and sick leave, provided that Puerto Rico repeals its law prohibiting employers from laying off employees without cause.

May 16 — Cash Projection Up 7%: Puerto Rico discloses cash position 7% ahead of projections made before Hurricane Maria.

May 13 — FOMB Rejects GO/COFINA Bondholders Agreement: Groups representing holders of general obligation and COFINA bonds agree on division of sales tax revenue and submit plan to FOMB, which rejects it immediately.

May 11 — FOMB Rejects Proposed Budget: FOMB rejects Commonwealth’s proposed budget as inconsistent with fiscal plan. The budget provides nothing for debt service despite $6.7 billion of debt payment ability in the certified fiscal plan through 2023; the budget also includes expenditures not authorized in the fiscal plan, reflecting the Governor’s refusal to implement pension and labor reforms required by the FOMB.

May 9 — History of Systemic “Financial Malpractice” Identified: GAO releases report that Chairman Bishop praises for “identifying the systematic financial malpractice of the Puerto Rico government over the past half century”.

April 30 — Disaster Aid Approved: U.S. Department of Education announces disaster assistance, including $589 million for Puerto Rico schools.

April 19 — FOMB Fiscal Plan Approved, Gives Billions to Litigation: FOMB imposes and approves its own Revised Fiscal Plan, under which the Commonwealth is projected to have a surplus after six years and sufficient cash flow to pay for essential public services and constitutionally guaranteed debt payment; in spite of this, the plan allocates billions for litigation to defend debt extinguishment instead of negotiating with creditors for a consensual restructuring.

April 5 — Commonwealth Disregards FOMB Requests: The Puerto Rican government submits another revised Fiscal Plan, which disregards FOMB requests for pension and labor reforms.

March 29 — Chairman Bishop Frustrated with FOMB Failures: In letter to FOMB, Chairman Bishop, whose House Natural Resources Committee developed PROMESA, reiterates his frustration with the board’s lack of creditor engagement and failure to mandate reforms to achieve PROMESA’s dual purpose of establishing fiscal responsibility and restoring capital market access.

January 22 — Governor Proposes PREPA Privatization: Governor Rosselló announces intention to privatize PREPA.

January 9 — Cash Balances Delay FEMA Funds: Citing significant cash balances in Puerto Rico accounts, FEMA says it will delay release of emergency funds.

January 6 — Feds Seize PREPA Equipment: FEMA and armed federal agents discover and seize critical equipment which PREPA was warehousing rather than making it available for power restoration.

2017

December 20, 2017 – March 28, 2018 — Six Versions of Fiscal Plan Omit Debt Payments: The Commonwealth submits six iterations of a fiscal plan, each rejected by the FOMB; each iteration indicates the availability of greater resources for paying the debts but makes no allocation for making debt payments.

December 22 — 12.5% Foreign Import Tax Imposed: Federal tax law enacted, imposing on Puerto Rico companies a 12.5% “foreign import” tax on intangible asset income, a critical source of income for the pharmaceutical and medical device sectors.

December 18 — $5 Billion in Extra Cash Leads to Transparency Questions: Puerto Rico discloses $5 billion more in cash than it had disclosed three weeks earlier, furthering evidence of inadequate financial controls and transparency.

November 20 — Commonwealth Employees to Get Bonuses Amid Insolvency Claims: Puerto Rico announces it will pay year-end government employee bonuses despite claims of insolvency and over objections of FOMB.

October 30 — Infamous Whitefish Contract Cancelled: PREPA cancels infamous Whitefish power restoration contract, emblematic of mismanagement and corruption at PREPA, and throughout island government.

October 26 — Disaster Relief in Billions to Aid PR: President Trump approves $36.5 billion in disaster relief funding, including up to $5 billion to assist Puerto Rico’s central government and municipalities.

October 13 — AG Voluntarily Withdraws PREPA Complaints In Face of Hurricane: In response to the humanitarian circumstances following Hurricane Maria, Assured Guaranty voluntarily withdraws complaints against PREPA and the Commonwealth’s Fiscal Plan, urging the FOMB to use the opportunity to work with creditors toward a new, and lawful, fiscal plan.

September 20 — Hurricane Maria Makes Landfall: Hurricane Maria makes landfall in Puerto Rico, causing significant damage and power outages across the island.

September 14 — PREPA Receivership Request Denied: Judge Swain rejects creditors’ plea to exercise their statutory and contractual rights to request appointment of a receiver to manage PREPA; in her decision, she said that appointing a receivership was “facially inconsistent” with the terms of Puerto Rico’s federal rescue package.

July 13 — Court-Ordered Mediation Begins

June 15 – July 7 — Chairman Bishop Demands FOMB Approve PREPA RSA; FOMB Rejects It: Chairman Bishop writes to the FOMB that its failure to approve the PREPA RSA that was approved by the utility, its creditors, and the Commonwealth violates PROMESA, which contained specific language to grandfather the deal. Creditors sue to compel FOMB to approve the RSA, but FOMB nevertheless rejects it, forcing PREPA into Title III.

June 14 — Senator Cotton Rebukes FOMB: Tom Cotton writes to FOMB demanding it comply with PROMESA by enforcing lawful debt payment priorities and liens and notes that the board’s failure to do so could cause retail mutual fund investors to lose $5.4 billion.

June 5 — Assured Guaranty Files Adversary Complaint: Assured Guaranty files adversary complaint, challenging the diversion of PRHTA debt payments, as it violates well-established treatment of special revenues during bankruptcy proceedings.

May 31 — Budget Fails to Prioritize Debt Payment: Puerto Rico releases budget elevating payment priority of all operating and pension expenses above constitutionally guaranteed general obligation debt, indicating zero dollars for debt service.

May 30 — COFINA to Freeze Payments: Judge Swain orders COFINA trustee to freeze payments to sales-tax bondholders.

May 17 — Hearing Over Sales Tax Revenue Dispute Held: Judge Swain holds first hearing in Title III cases of the Commonwealth and COFINA, which dispute how sales-tax revenue should be distributed.

May 4 — First Lawsuit Filed by Assured Guaranty: First lawsuit challenging the fiscal plan is filed by Assured Guaranty.

May 3 – 22 — FOMB Runs Around PROMESA Requirements: Circumventing the PROMESA requirement to conduct out-of-court negotiations before employing Title III, FOMB seeks Title III protection for the Commonwealth, COFINA, the Highways and Transportation Authority, and the Employees Retirement System.

May 1 — Medicaid Funding of $295 Million Secured: Puerto Rico secures $295 million in Medicaid funding.

April 29 — Governor Signs Acts, Neglects Debt Repayment: Rosselló signs the “Fiscal Plan Compliance Act,” which lacks provisions for debt repayment.

April 7 — Senators Call Out FOMB Failures: U.S. Senators Tom Cotton and Thom Tillis write letter to FOMB pointing out that Puerto Rico’s fiscal plan does not comply with PROMESA.

April 6 — PREPA RSA Finds Support in Governor: Gov. Rosselló supports PREPA RSA after negotiating modifications with PREPA and its creditors.

March 1 – 13 — Fiscal Plan Rejected, Revised, Accepted: Governor Rosselló releases a new fiscal plan, which FOMB rejects, and then — after a revision — accepts.

January 2 — Rosselló Win Comes With Fiscal Emergency Declaration: Rosselló succeeds Padilla as Puerto Rico’s governor, declares fiscal emergency and demands 10% spending cut across all agencies.

2016

December 21 — Congressional Task Force Makes Key Recommendations: The Congressional Task Force on Economic Growth in Puerto Rico releases its final report, recommending, among other things, increased federal Medicaid funding tied to better financial controls; congressional consideration of more competitive tax treatment of companies that generate economic activity and employment on the island; and inclusion of Puerto Rico in federal statistical programs.

November 23 — FOMB Fiscal Plan Criteria Set: FOMB requests Fiscal Plan revisions, including debt sustainability analysis, and sets 14 criteria the plans must meet.

October 14 — Padilla Files Proposed Fiscal Plan: Gov. Padilla files a proposed fiscal plan with the FOMB.

September 30 — FOMB Meets For The First Time

August 31 — President Obama Names FOMB Members

July 1 — Puerto Rico Skips $800 Million of G.O. Debt Payments: Puerto Rico defaults on approximately $800 million of general obligation debt, the first of the defaults on its constitutionally guaranteed debt.

June 30 — President Obama Signs PROMESA Into Law: The bill establishes the FOMB to ensure Puerto Rico’s fiscal responsibility and access to capital markets; PROMESA also establishes a Congressional Task Force on Economic Growth in Puerto Rico. Title III of PROMESA creates a bankruptcy-like procedure to adjust debt, and Title VI encourages and provides a legal framework for consensual restructurings. Full text.

June 13 — SCOTUS Upholds 2014 Recovery Act: The U.S. Supreme Court upholds a decision in a 5-2 vote invalidating the 2014 Recovery Act, which intended to allow the island’s public entities to restructure debt.

May 2 — $400 Million GDB Debt Defaults: GDB defaults on approximately $400 million in debt payments due.

April 6 — Law Imposes Moratorium on Debt Payments: Governor Padilla signs a law allowing him to impose a moratorium on debt payments.

February 15 — Commonwealth Passes Revitalization Act: Puerto Rico’s House of Representatives passes the Revitalization Act, which contains reforms to facilitate the PREPA RSA.

January 7 — Constitutionality of the Clawback Order Challenged: Assured Guaranty files suit challenging the constitutionality of the Clawback Order.

January 4 — $37 Million Default and $174 Million Clawback: Puerto Rico defaults on $37 million and claws back $174 million of public corporation debt payments, while paying all $329 million of principal and interest due to general obligation bondholders.

2015

December 1 — Puerto Rico Narrowly Avoids Default By Clawback: The Commonwealth avoids defaulting on $354 million of debt payments on general obligation and Commonwealth-guaranteed bonds, partly by clawing back revenue from public corporations. The island’s governor announces Commonwealth will continue to redirect revenue designated for future debt payments to pay for government services.

November 30 — Governor Issues Unlawful Clawback Order: Gov. Padilla issues the Clawback Order, allowing unlawful diversion of pledged special revenues (such as those of PRHTA and other public corporations) to pay Commonwealth operating expenses.

August 3 — Puerto Rico Defaults on Debt Payment for First Time: Puerto Rico defaults for first time in its history, paying just $628,000 of a $58 million Public Finance Corporation debt payment.

July 26 — Economists See Way Out For Puerto Rico Without Default: A group of economists led by former IMF official Claudio Loser releases a report arguing Puerto Rico can resolve its debt crisis without defaulting on Commonwealth debt.

July 1 — PREPA Reaches Deal With Creditors: PREPA makes a deal with its creditors, under which bond insurers provide liquidity to PREPA to avert default. The deal allows time to conclude a consensual Restructuring Support Agreement (the PREPA RSA).

June 29 — Krueger Report Recommends Reforms and Assistance: The “Krueger Report,” commissioned by GDB and written by a team of former IMF officials led by Anne Krueger, is released. It recommends structural and fiscal reforms; it also calls for federal assistance, such as establishing bankruptcy eligibility and rescinding the Jones Act, which increases costs on the island by preventing non-U.S. ships from carrying goods to and from the U.S. mainland.

June 28 — Debt “Unpayable,” According to Padilla: Governor Padilla declares the island’s debt “unpayable”.

February 6 — Commonwealth’s Recovery Act Judged in Violation of U.S. Bankruptcy Law: A U.S. District Judge strikes down Puerto Rico’s 2014 “Recovery Act,” aimed at allowing its public entities to restructure their debts in Puerto Rico courts, saying the act violates U.S. bankruptcy law.

2014

June 28 — Commonwealth Enacts Law to Restructure Debt Despite Ineligibility: Puerto Rico enacts the “Recovery Act,” allowing public corporations to restructure their debt despite ineligibility for Chapter 9 bankruptcy protection.

February 4 – 11 — The Island’s Bonds Are Downgraded: Three rating agencies downgrade Puerto Rico’s bonds to “junk” status.

2006 – 2014

Commonwealth Issues Bonds That Violate Sound Fiscal Practices: Puerto Rico continues to issue bonds throughout the United States, often to fund day-to-day operations rather than infrastructure investments. Despite some economic deterioration on the island, the bonds are attractive to investors because the Puerto Rico constitution prioritizes debt; the bonds are triple-tax exempt, and U.S. bankruptcy law explicitly excludes Puerto Rico from Chapter 9 relief.

2006

U.S. Phases Out Key Tax Code Incentives: U.S. government starts phase-out of Section 936 of U.S. tax code, which had provided tax incentives for U.S. corporations to operate in Puerto Rico.

The island’s long economic slide begins.