Puerto Rico has taken a big step toward a bankruptcy that would be unprecedented in two ways: It would be the first by an American state or territory, and it would be by far the biggest of its kind, dwarfing Detroit's $18 billion restructuring in 2013. Puerto Rico's financial oversight board filed a debt restructuring petition in federal court Wednesday, the day after several creditors sued over bond defaults, reports Reuters. The island territory has been mired in economic crisis for a decade and has seen its population shrink by a tenth over that time as residents move to the mainland US. The New York Times reports that the filing includes $74 billion in debt and $49 billion in pension obligations.
NPR describes the process Puerto Rico has entered as a "bankruptcy-like process" tailor-made for the island, with the same underlying principles as Chapter 9 protections. It's not clear how much holders of Puerto Rico government bonds will receive, the Washington Post reports, but a group representing senior bondholders described the filing as a necessary step forward. "The move enables Puerto Rico to freeze numerous lawsuits, maintain essential services for its residents, and rely on a court-driven restructuring process to objectively determine respective creditors' rights," the group said. The petition was filed under the terms of a Puerto Rico rescue bill lawmakers passed last summer. (Read more Puerto Rico stories.)