I don't post most of my law review articles here, but my latest might be of some interest to Slips readers generally. In Fairness and Flexibility: Understanding Corporate Bankruptcy’s Arc, out now in the University of Pennsylvania Journal of Business Law, I trace the long history of American business reorganization law, starting with antebellum mortgage foreclosures under state statute, up to the present Restructuring Support Agreements (RSAs). I ultimately urge more judicial oversight of current practices – which I argue evidence an extreme of "flexibility" – lest chapter 11 face an even more extreme reform backlash because of increasing unfairness.
Author: Stephen Lubben
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Get your copy today!
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The third edition of my Corporate Finance textbook is out and available for use in the Spring Semester. Among other new features, the new edition has a new case study (iHeart) and extensive coverage of CLOs, which are important players in finance before and after the on
set of financial distress. Professors can contact me directly for access to a Dropbox folder that is chock full of class materials and background readings.
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Puerto Rico News
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The President today announced he was appointing the following people to the PROMESA oversight board. It is not immediately clear which slots these people are filling (that is, who nominated these people). There are three open (presidential) slots at present, but one of the people below is already on the board:
- Andrew George Biggs, of Oregon [existing board member]
- Dr. Betty A. Rosa, Ph.D., of New York
- John E. Nixon, of Utah
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Puerto Rico as a State?
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The House of Representatives has just voted to make the District of Columbia a state. Obviously the Senate half of the process might have to wait until next year, at least.
What about Puerto Rico? Obviously there is the question of whether the people of the Commonwealth want statehood. But if at least a majority do want statehood, it would seem to make sense address the issue at the same time that DC goes up.
And of course, given that this is Credit Slips, we might also wonder what would happen to PROMESA, if statehood were to happen. Do we wait until the process is over, or end it "now," leaving the creditors to negotiate with a debtor that now has the benefit of the Eleventh Amendment? Interesting things to mull over, but potentially at issue as soon as early next year.
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Fun with CLOs
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Frank Partnoy has an important and unsettling piece in The Atlantic about how CLOs (securitized syndicated loans, in short) might be at the core of the next bank meltdown, which he sees coming as soon as later this year. Because 2020 was starting to get dull …
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Puerto Rico and the Oversight Board
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The Supreme Court's opinion is out today, and the short answer is that the Board's appointment did not violate the Appointments Clause of the Constitution (Article II, Section 2, Clause 2), and thus the First Circuit is reversed.
But take a look at Justice Sotomayor's concurrence. She is all but inviting the Commonwealth to argue that Congress had no power to enact PROMESA in the first instance, given that it had arguably given up much of its power over Puerto Rico back in the 1950s. It is an argument I had hoped the Court would take up in connection with the Recovery Act.
In short, more interesting legal questions to come (maybe).
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State Bankruptcy
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So Senate Majority Leader Mitch McConnell says States should be able to file for bankruptcy, to get out of their pension obligations. He'd rather that than give them a federal bailout, given current conditions.
I have long argued that States don't need bankruptcy, because they have stronger sovereign immunity (under the Eleventh Amendment) than most actual sovereigns. But put that to one side.
Why does McConnell think that such a bankruptcy will be limited to single class of creditors? Indeed, I doubt such a bankruptcy system would be consistent with the Bankruptcy Clause.
And quite frankly, I suspect bondholders understand this (even if anti-union activists don't). That is why you never see the municipal bond managers advocating for "State bankruptcy." The bankruptcy of any of the 50 states would look more like Puerto Rico's, where haircuts to bondholders are most definitely on the table. The only question is "how much?"
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The end of the UFCA?
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Governor Cuomo has signed into law New York's version of the Uniform Voidable Transactions Act (UVTA). Does this mean I don't have to talk about the UFCA in my bankruptcy classes anymore?
It also means that both California and NY are on the UVTA, which may be the beginning of the end for the UFTA.
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Juno?
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On Friday night I landed at JFK, after a very nice international insolvency conference at the University of Miami, and took a "Juno" home. Little did I know it would be my last time using the app.
On Monday Juno announced it was shutting down, and on Tuesday it (and several affiliates) filed chapter 11 petitions. It blamed its demise on "burdensome local regulations and escalating litigation defense costs." The company has been marketing itself for several months, and its parent (Gett) intends to continue in the US as a business only ride service, operating in partnership with Lyft.
Now here's a question. The company notes that it "operated in New York, New York, where its headquarters are located." Where did it file its case? Delaware. Why?
Comments are open.
In the meantime, I guess I'm stuck with Lyft. And their drivers who insist on picking me up across the street from my apartment building.
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It makes a fine Halloween gift!
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On sale now, my latest book: American Business Bankruptcy, A Primer. Suitable for use as supplemental reading in all sorts of bankruptcy classes, and even some corporate finance classes that cover financial distress (especially those using a certain textbook).
I also think it would be a good read for junior attorneys who (shockingly) neglected to take bankruptcy in law school. And don't forget the international attorneys who want a quick way to learn about American law. It also stabilizes wobbly tables and kills flies.
In short, it makes a great gift for everyone on your shopping list! Buy several copies today. And tomorrow too.