May 3 (UPI) -- Puerto Rico, owing $73 billion to creditors, filed for a form of bankruptcy protection Wednesday.
"Given the deficit that we have inherited, it is my responsibility to guarantee the best interests of the Puerto Rican people," Gov. Ricardo Rosselló announced.
The case isn't formally called bankruptcy because Puerto Rico is barred from using Chapter 9, which is usually used by local governments seeking protection.
Instead, Puerto Rico will petition a judge for relief under a new federal law for insolvent territorial governments, called Promesa. It's a legal mechanism created by Congress to restructure debts if negotiations fail.
The largest municipal bankruptcy was roughly $18 billion owed by the city of Detroit in 2013.
In the court-supervised proceeding known as Title III, Puerto Rico will face off against hedge funds, mutual funds and bond insurers.
A legal stay that protected Puerto Rico from lawsuits expired Monday night. Hedge funds holding general obligation and sales-tax bonds sued Tuesday, naming the governor as a defendant.
Rosselló was elected governor on Nov. 8, pledging to repay the territory's debts, shrink the government and strengthen ties with the United States.
"Now it seems like the honeymoon's over," Chas Tyson, vice president at investment banking firm Keefe, Bruyette & Woods Inc., said to The Wall Street Journal. "It seems that we're back where we used to be."
Puerto Rico piled up debt because of 45 percent poverty rate, a 11.5 percent unemployment rate and a decadelong recession. The population of Puerto Rico had declined 300,000 from 2010 to 2015's 3.4 million, according to the U.S. Census Bureau. Many of the U.S. citizens are fleeing to the mainland, especially Florida.
The territory also has nearly $50 billion of unfunded pension obligations.
Puerto Rico will face off against angry hedge funds, mutual funds and bond insurers in the court-supervised proceeding known as Title III, created by Congress to restructure debts by force if negotiations broke down.
On April 26, he posted on Twitter: "Democrats are trying to bail out insurance companies from disastrous #ObamaCare, and Puerto Rico with your tax dollars. Sad!"