"We're going to protect our people", the governor said hours after the USA territory was hit with multiple lawsuits from creditors seeking to recuperate the millions of dollars they invested in bonds issued by Puerto Rico's government, which has declared several defaults amid a 10-year recession.
With no deals reached, the expiration of the freeze opened the floodgates for stakeholders to take Puerto Rico to court, in hopes of blocking Governor Ricardo Rossello's plan to impose drastic repayment cuts.
Puerto Rico and its agencies owe $73 billion to creditors, dwarfing the roughly $18 billion owed by the city of Detroit when it entered what was previously the largest municipal bankruptcy in 2013.
Puerto Rico's situation is unique in that it's the first USA territory to file for bankruptcy. The plight may serve as a lesson and cautionary tale for bondholders, and complicates the USVI's situation, as Puerto Rico and the U.S. Virgin Islands are close in proximity, and have numerous same problems.
Some expect creditors to challenge the filing, arguing the board did not meet requirements under PROMESA to conduct good faith negotiations out of court.
"The courts can not say, 'We're going to give you the Puerto Rico coliseum, or these properties from the Land Authority", he said.
Tuesday's lawsuits follow a restructuring offer from Rossello's administration on Saturday that would have favored Puerto Rico's general obligation bondholders, whose debt is guaranteed by the island's constitution. A spokesman for the Puerto Rican government said that the full $74 billion could be restructured under Title III, as the Chapter 9 equivalent is known, if agreements are not reached with creditors.
Puerto Rico's decision to use a US court to escape from its debts cast few ripples in the state and local bond market, where prices rose Wednesday.
Both Puerto Rico and Detroit had been effectively stripped of local control over their finances by the time each sought protection from creditors.
A federal district court judge will now be in charge of the restructuring.
Puerto Rico is entering uncharted territory. Insurers of issuer debt have felt a pinch around insuring Puerto Rico's municipal bonds. They said Puerto Rico should explain what it had done with that money before it got any more help.
Unfortunately for the island territory, President Donald Trump has already come out via Twitter to say he is against a bailout.
Puerto Rico's fiscal plan, rejected by creditors, would have it pay $800 million a year in debt service, an 80% cut in what it would otherwise owe. The latest proposal would have provided as much as 90 cents on the dollar to general-obligation bondholders.
The slide into bankruptcy would mark a new low in Wall Street's relations with Gov. Rosselló, a political newcomer who pledged as a candidate to repay the territory's debts, shrink the government and strengthen ties with the U.S. "It's hard to see how Puerto Rico will have access to the large amounts of affordable capital needed to revitalize the island without consensus with its existing creditors".