Puerto Rico’s financial oversight board on Wednesday filed for a form of bankruptcy protection under last year’s federal rescue law known as PROMESA, touching off the biggest bankruptcy in the history of the U.S. municipal debt market.
The move comes a day after several major creditors sued the U.S. territory and its Governor Ricardo Rossello over defaults on the island’s $70 billion in bonds.
The request came under Title III of the PROMESA law is an in-court debt restructuring process akin to U.S. bankruptcy protection, as Puerto Rico is barred from traditional bankruptcy because it is a U.S. territory. The case was filed in U.S. District Court in Puerto Rico.
The process will give Puerto Rico the legal ability to impose drastic discounts on creditor recoveries, but could also spook investors and prolong the island’s lack of access to debt markets.