Puerto Rico: Of Capital Structures, Control Rights and Liquidity

Abstract

The on-going financial distress of Puerto Rico seems to be accelerating, with no clear resolution in sight. This essay takes stock of the current situation, and suggests a path forward. It recounts the economic stress the territory has experienced in recent years, and delineates the complex capital structure that has resulted. The essay also argues that the problems that the island faces are as much about control as they are about trimming the current debt stock. The impending lack of liquidity has put Puerto Rico on the brink. It needs Congress to both provide fresh funds while at the same time instituting a mechanism to address the structural issues that beset the territory.