Puerto Rico Governor Ricardo Rosselló announced on Wednesday that the country's federal oversight board had filed in a US court in San Juan, seeking to slashthe island's multi-billion-dollar debt after failing to strike an agreement with bondholders.

Rosselló said he failed had to persuade the island's major creditors to accept less than they were owed, adding that the government was now facing an onslaught of new lawsuits stemming from a series of defaults.

"We have reached this decision because it protects the best interests of the people of Puerto Rico," Rosselló said.  

Puerto Rico has roughly $73 billion (66.8 billion euros) of bond debt, and nearly $50 billion of unfunded pension obligations to restructure. It amassed its debt load after decades of borrowing and years of economic decline. More than 45 percent of the 3.4 million US residents on the island live below the poverty line, with the unemployment rate more than double the US national average.

No 'big brother bailout'

The case will not be formally called bankruptcy, since Puerto Rico is barred from using Chapter 9 proceedings used by insolvent local governments in the US. It will instead petition for relief under a new federal law for insolvent territorial governments, called Promesa.

Last year, US Congress approved Promesa rescue legislation granting Puerto Rico a respite from litigation until May 1. But Congress has not acted to extend the stay and US President Donald Trump recently expressed disdain for what he characterized as a "bailout” of Puerto Rico.

What follows now is a process called Title III, allowing the Puerto Rican government to use the courts to cut debt. The financial collapse promises to impose deep losses on bondholders who for years snapped up Puerto Rico's securities in the hope a bankruptcy wasn't a legal option for Puerto Rico.

The scale of the restructuring is far larger than Detroit's record-setting bankruptcy, and it's unclear how long a court proceeding would last or how deep would be the cuts that are imposed on bondholders.

Rosselló latest offers to creditors show the commonwealth believes general obligations should receive a better recovery than its sales-tax bonds, another major class of its debt. The latest proposal would have provided as much as 90 cents on the dollar to general-obligation bondholders.

The prices of Puerto Rico's major bonds were little changed after the announcement. General obligations due in 2039 traded for an average of 62.6 cents on the dollar, up from 61.1 cents Tuesday.

uhe/kd (Reuters, dpa, Bloomberg)