Category: In the News
Commonwealth Finds Common Ground: Deal with Bondholders May Be a Turning Point as Puerto Rico Seeks to Emerge in Early 2020
The Financial Oversight and Management Board for Puerto Rico (Oversight Board) announced Sunday that it had reached an agreement with bondholders regarding the terms of a plan of adjustment that would resolve $35 billion worth claims against the Commonwealth of Puerto Rico. If approved by the Bankruptcy Court, the deal would reportedly reduce the struggling island’s outstanding bond debt to less than $12 billion, a reduction of more than 60%.
When we last checked in on the Puerto Rico restructuring case, we reported on the February 15 decision of the First Circuit Court of Appeals that the members of the Financial Oversight and Management Board were appointed in contravention of the Appointments Clause of the U.S. Constitution because they were never confirmed by the U.S. Senate. But, in recognition of the implications of its decision, the Court delayed the effectiveness of its ruling for 90 days. That 90-day deadline was set to expire on May 16, causing several commentators to express skepticism that a legislative solution could be achieved in the time allotted.
There have been two significant developments in the ongoing restructuring case for the Commonwealth of Puerto Rico. First, as was widely expected, District Judge Laura Taylor Swain entered orders on February 4 and 5, respectively, approving the Commonwealth’s entry into the Commonwealth-COFINA settlement (which we reported on here) and confirming the Title III Plan of Adjustment for COFINA. The dispute over ownership of the sales taxes pledged to pay the COFINA bonds has complicated the Commonwealth’s bankruptcy case since it was commenced in 2017. Had Judge Swain been forced to resolve the dispute it could have wiped out the COFINA bondholders entirely, or assured them a 100% recovery. But, with a settlement of this dispute in hand, and a confirmed plan of adjustment confirmed for COFINA, the Debtors were poised to pivot towards pursuing a consensual plan for the Commonwealth itself.
On January 14, 2019, facing “billions of dollars in liability claims from two years of deadly wildfires,” PG&E Corporation and its regulated utility subsidiary, Pacific Gas and Electric Company, reported that they expect to file petitions under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Northern District of California on or about January 29, 2019. It is rare for a debtor to telegraph its filing so clearly in advance of the petition date, but a recently enacted California law required a 15-day advance notice period before the filing.
A sex-abuse scandal has landed another organization in bankruptcy court. USA Gymnastics (“USAG”) filed chapter 11 last week in Indiana following a team doctor’s conviction for abusing hundreds of girls.
Let the Seller Beware? Debtor’s Attempt to Monetize its Own Default May Impact Sellers of Credit Default Swaps
The Sears bankruptcy case made headlines this month in the complex world of credit default swaps (CDS). A credit default swap is a contract pursuant to which the seller receives payment from a buyer in exchange for which the seller must compensate the buyer in the event of a default or other specified credit event. On November 9, in what it openly admitted was an attempt to take advantage of the abundance of default protection issued in the days leading up to its bankruptcy filing, Sears sought permission to auction certain “medium-term notes” (MTNs) that were issued by Sears Roebuck Acceptance Corp. (“SRAC”) prior to the petition date and held entirely by affiliates of Sears.
As we reported last year, on August 10, 2017, Judge Swain entered an order establishing procedures to govern resolution of the Commonwealth-COFINA dispute (the “Resolution Stipulation”). In recognition of the fact that the Oversight Board acts for both the Commonwealth and COFINA, the Resolution Stipulation provided for appointment of agents to act independently for each of them: (i) the Creditors’ Committee, to serve as the Commonwealth’s representative (the “Commonwealth Agent”) and (ii) Bettina Whyte, an experienced restructuring professional with Alvarez & Marsal, LLC, to serve as the COFINA’s representative (the “COFINA Agent,” and, with the Commonwealth Agent, the “Agents”).
Started as a mail-order retailer, evolved to brick-and-mortar stores in urban areas and expanded to a big-box retailer through merger, Sears is now facing the most turbulent time in its history. On October 15, 2018, Sears Holdings Corp.—the holding company of Sears and Kmart—along with its affiliated entities, filed a voluntary Chapter 11 petition in the United States Bankruptcy Court for the Southern District of New York. With assets of approximately $6.94 billion and liabilities of approximately $11.34 billion in total, the fate of “Where America Shops” remains unclear.
It’s hard to find something positive to write about Venezuela. Some basic facts tell the story of the misery there.
Consumer prices this year might rise one million percent. The minimum wage was increased by 3,000 percent so that seven million workers will now receive $20 a month. And many others live on just $2 to $8 a month and eat one meal a day. The poverty rate is a crushing 82 percent. Medicine is scarce.
The failure of Toys ‘R Us to successfully reorganize in Chapter 11 sent shockwaves throughout the retail world and the restructuring community. Saddled with unsustainable debt and unable to chart a viable path forward, the company – in bankruptcy since late 2017 – conducted going-out-of-business sales and closed most of its more than 700 stores this summer. As part of the wind-down process, the debtors scheduled an auction to sell their existing intellectual property, including the name, website, and, of course, their celebrated brand mascot, Geoffrey the Giraffe.
Bondholders announce framework for Commonwealth-COFINA Settlement; Oversight Board and Government say the deal is “Not Acceptable.”
On May 14, a large coalition of stakeholders in the COFINA-Commonwealth litigation, which we previously reported on here, announced a proposed settlement outline to resolve the long-running dispute over who owns the sales and use taxes pledged by COFINA to secure COFINA bonds. The proposed settlement is supported by the Ad Hoc Group of Puerto Rico General Obligation Bondholders, the COFINA Senior Bondholders Coalition, and certain monoline insurers. But while this is an important step forwards, the settlement does not yet have the support of the two agents appointed by the Oversight Board, the only parties with authority to settle the dispute.
On March 7, 2018, Journal of Corporate Renewal featured an article written by Daniel A. Lowenthal, Chair of Patterson Belknap’s Business Reorganization and Creditors' Rights Practice, entitled “Venezuelan Debt Crisis Intensifies as Its Leaders Ponder Responses.” Mr. Lowenthal discusses Venezuela's current debt crisis and the uncertainty of how it will unfold and how long it will take to resolve.
To read the full article, click here.
In September, we reported on the possible bankruptcy of Connecticut’s capital city and questioned whether anything short of a State-led bailout could save the City from its crippling deficit and mounting debt service payments.
Back in the day--say, the last two decades of the twentieth century--we bankruptcy lawyers took it largely on faith that the right structural and contractual provisions purporting to confer bankruptcy-remoteness were enforceable and likely to be successful in preventing an entity from becoming, voluntarily or involuntarily, a debtor under the Bankruptcy Code. During the latter part of the first decade of the twenty-first century, however, that faith began to erode as bankruptcy court case law began to accumulate which denied motions to dismiss petitions based upon remoteness provisions.
Perhaps this is one of the first articles you’re reading about the debt crisis in Venezuela. It won’t be the last. The situation there is bad and will get worse.
On Tuesday, two leading credit-rating agencies again downgraded the city of Hartford: Moody’s Investors Service now rates the struggling city at Caa3, while S&P Global Ratings has lowered its rating to CC. They attribute the junk classification to the increasing likelihood of a default by Hartford on its debt service obligations to bondholders.
On May 3, 2017, the Financial Oversight and Management Board for Puerto Rico (“Oversight Board”), which was established under the Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”), filed a voluntary petition for relief for the Commonwealth of Puerto Rico (the “Commonwealth”). On May 5, Chief Justice Roberts appointed District Judge Laura Taylor Swain of the Southern District of New York to conduct the case. Judge Swain was a bankruptcy judge in the Eastern District of New York before joining the district court in 2000.
Lehman Brothers Announces Settlement to Resolve Massive RMBS Claims; Estimation Hearing Slated for Later This Year
For over eight years, In re Lehman Bros., No. 08-13555-scc (Bankr. S.D.N.Y.), has been one of the most active, complex bankruptcy dockets in the country. A large portion of the remaining contested matters in that case are claims by trustees for residential mortgage backed securities (RMBS), who continue to pursue claims against the Lehman estate for losses caused by toxic mortgages. Recent developments show that Lehman is trying to wrap up many, if not most, of those RMBS claims by the end of this year.