(Reuters) - Puerto Rico’s new government tapped law firm Dentons to help it develop a fiscal turnaround plan and lead restructuring negotiations with creditors holding some $70 billion in debt, the firm announced on Thursday.
Dentons will replace Cleary Gottlieb, which had served as legal counsel under the administration of ex-Governor Alejandro Garcia Padilla.
Governor Ricky Rossello, who was sworn in on Jan. 2, had sharply criticized Garcia Padilla’s financial policies, which were shaped in large part by Cleary, during his campaign.
Garcia Padilla’s financial adviser, Millstein and Co, will also likely be replaced under Rossello.
In a statement on Thursday, Dentons said the engagement would be led by bankruptcy partner Sam Alberts, who represented a committee of retirees in Detroit’s municipal bankruptcy in 2013.
Puerto Rico faces months of complicated debt restructuring talks with myriad creditor groups. The U.S. territory owes $18 billion in general obligation debt, backed by a constitutional promise; $15 billion in so-called COFINA debt backed by sales tax proceeds; and billions more in debt at public agencies like power authority PREPA and water utility PRASA.
Nearly half the island’s 3.5 million residents live in poverty. Its unemployment rate is more than twice the U.S. average, and its population continues to fall as locals flock to the U.S. mainland.
Under a federal rescue law known as PROMESA, passed last year, the island must submit a fiscal turnaround plan to a federal board appointed last year to manage the island’s finances. The board will also likely play a role in facilitating debt restructuring talks between the island and creditors.
Garcia Padilla had pushed for sharp reductions in debt payments to creditors, and ordered several defaults during his term. Rossello, who favors U.S. statehood for the island, believes it should try to limit such cuts while imposing belt-tightening measures like consolidating public agencies.
Editing by Cynthia Osterman