Category: Puerto Rico

  • Remembering Brady Williamson

    Posted by

    Melissa Jacoby

    EW on BWBrady Williamson, a remarkable person, has died at the age of 79. Brady's engagement with the field of bankruptcy law is diverse and of long standing, from arguing before the United States Supreme Court to chairing the National Bankruptcy Review Commission, where I first met and worked for him as a staff attorney. More recently, Brady had a range of professional roles in big bankruptcies, such as those involving the Commonwealth of Puerto Rico, Purdue Pharma, and in cases that implicated air and water quality.  

    Brady also had tremendous expertise in foundational constitutional law matters and a commitment to democracy, the rule of law, and fair elections at home and around the world. He recently worked with students on such matters from coast to coast, after teaching with some regularity over the years at the University of Wisconsin-Madison. The challenges and joys of university teaching was a topic of what turned out to be our last telephone conversation.

    Brady's impact during his lifetime was broad and deep; it will be enduring. Deepest condolences to his loved ones.  

     

  • Just posted: Other Judges’ Cases

    Posted by

    Melissa Jacoby

    This article has been in the works a long time. During the Detroit bankruptcy, I wrestled with some of its topics on Credit Slips.  

    The case studies involve bankruptcy. The mediators in those cases are life-tenured judges.

    The footnotes make it long; the text is short.  

    Other Judges' Cases remains in the edits stage and is scheduled to be published later this year.  

    Please read it. Thank you!

  • Professionals Must Now Disclose Their Interests in the PR Cases

    Posted by

    Stephen Lubben

    President Biden has just signed the "Puerto Rico Recovery Accuracy in Disclosures Act of 2021’’ or ‘‘PRRADA’," which requires professionals to make chapter 11-style disclosures when they file fee applications in the PROMESA title III cases. Failure to comply not only can result in loss of fees in the Puerto Rico cases, but such failure to disclosure must also be disclosed in other chapter 11 cases going forward. Presumably the prior failure to comply with statutory disclosure requirements should factor into the decision to authorize retention in chapter 11.

  • Puerto Rico and the Professionals

    Posted by

    Stephen Lubben

    It is Congress week on Slips. On Thursday I will be testifying in front of the Senate Committee on Energy and Natural Resources in support of S. 375, Puerto Rico Recovery Accuracy in Disclosures Act of 2021 or PRRADA. The bill, which has already passed the House, would supplement PROMESA's existing requirements that professionals file fee applications with various disclosure requirements that are familiar from chapter 11. My written testimony is here.  

  • Puerto Rico News

    Posted by

    Stephen Lubben

    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

  • Puerto Rico as a State?

    Posted by

    Stephen Lubben

    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.

  • Puerto Rico and the Oversight Board

    Posted by

    Stephen Lubben

    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).

  • State Bankruptcy

    Posted by

    Stephen Lubben

    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?"

  • Puerto Rican Debt and Force Majeure

    Posted by

    Mitu Gulati

    Among other things, the Coronavirus and the near global shutdown, has gotten contracting parties scrambling to read their force majeure clauses.  But what about if the parties in question didn’t explicitly contract for an “act of god” clause that covered unexpected pandemics? The question, as we’ve discussed on this blog before, would become one of whether such a clause was implicit in the contract (here).  That, in turn, will in part be a function of the contract’s governing law (here).  Puerto Rico, already mired in a debt crisis, is going to need even more relief now.  Question is: Does the fact that its debt contracts are almost all governed by local Puerto Rican civil law embed a source of temporary relief for it?

    My casual impression is that the leading common law jurisdictions for contract law, such as New York and England, would be reluctant to find an implied force majeure term in contracts among sophisticated parties.  By contrast, civil law jurisdictions such as France, the Netherlands and Spain, sometimes have such a clause baked into the civil law and also appear more willing to find such a provision implicit (for discussions of the common law v. civil law approaches, see these memos from White & Case and Cleary Gottlieb memos, here and here).

    Particularly intriguing in the context of a sovereign or quasi sovereign debt, is the possibility that an implication of the civil law jurisdiction in question having force majeure as part of the civil code means that the relevant government can, through legislation, make it clear that a particular event (Coronavirus) satisfies the conditions for force majeure (here).  China has apparently done just that, even issuing force majeure certificates in some cases (here and here).

    A reason I’ve been thinking about implied force majeure clauses is that my seminar with Guy Charles has been discussing Puerto Rico’s debt crisis.  (Two of our recent guests to the seminar were David Skeel and Sam Erman, both of whom had fascinating papers on the topic of Puerto Rico).  Puerto Rico is, unlike most of the US,  a civil law jurisdiction.  Better still, almost all of its debt is under local Puerto Rican law (now, in the case of anything redone under PROMESA, with an overlay of that federal law). 

    One has to concede up front that the Puerto Rican debt crisis is not the product of some exogenous event such as a hurricane or the coronavirus.  But surely everyone would agree that the virus has the potential to push Puerto Rico (back) over the financial brink, just as its seems to be getting back its sea legs (see here). And, so the question is, does Puerto Rico, as part of the implicit terms of any debt contract made locally, have the right to temporary relief from having to perform as a result of the enormous economic slowdown that the virus is already causing.  I haven’t been able to track down anything specific in the Puerto Rican civil code, but the Puerto Rican code has its origins in the Spanish civil code. And the Spanish code has force majeure baked in (for discussions, see here and here).

    Hmmm . . . Some years ago, a wonderful group of students did find some promising avenues for Puerto Rican debt relief buried deep in its civil code (here).

    *Note (in response to the first few email comments – that I'm most grateful for):  The question of what precise law the new agreements are governed by is thorny.  Best I can tell, it seems to be PROMESA and, to the extent not inconsistent with PROMESA, Puerto Rican law. But what in the world does that mean with respect to what we care about: force majeure for pandemics such as coronavirus?  I don't think there is any federal contract law on that matter; and, if so, that strikes me as pointing to Puerto Rican local law, which in turn might point us to the Spanish civil code. But maybe there is an argument there about how federal law has something to say about force majeure in the context of a pandemic that is escaping me. The actual language of the new governing law clauses is fascinating if you are as obsessed with governing law provisions as Mark W and I have been as of late.  John Coyle of UNC is the leading scholar of governing law clauses in the whole wide world (see here). And he is a contracts guru as well.  Maybe I can get him to opine.  I will try to do so and report back.

  • Skeel on the Puerto Rico Oversight (NOT Control) Board

    Posted by

    Mitu Gulati

    I have long been a fan of both David Skeel's research and him as a person. Not only was his book Debt's Dominion key to some of the earliest research I did on Collective Action Clauses, but he was always willing to answer my stupid questions about basic concepts (something that fancy tenured professors at Ivy League schools do not often do).  Over the years, as he has gotten fancier and fancier, I have continued to burden him with my stupid questions about bankruptcy and restructuring matters and he has never ceased to be generous; the proverbial gift that keeps on giving and never ever taking.

    Last week, to penalize him yet further for his kindness over the years to me, I asked him to please come to talk to the students in my debt class about his work on the Puerto Rico oversight board (e.g., here). In our class, we read his work and it occurred to me that although it was a long shot, it would be cool to be able to talk to David in person.  And he said yes — and that was even though I warned him that some of our seminar questions would be a tad bit hostile, in terms of pressing him about all the things that the control board had done vis-a-vis pensions, the lack of accountability of the board, imperialism, insular cases, etc., etc.

    The session was amazing. The students did not disappoint in terms of relentlessly asking him tough and incisive questions (I was so very proud of them).  And he answered them in the way only he can do: in a generous and candid fashion. Alas, I cannot repeat the details of what he said, since we promised him that we would not report on any of that.  But I can lay out what I think are some of the key questions that I hope David will address in the book that I hope he will write when this is all over.

    First, why was the choice made to treat Puerto Rican debt as if it were domestic municipal debt instead of treating it more like sovereign debt?  The fact that Puerto Rican debt circa 2012, when the @#@# hit the fan first, was all under local law meant that Puerto Rico could have used the "local law" advantage that Lee Buchheit's team used in both Greece and Barbados (on the latter, see Andrew Shutter's cool new article in the Capital Markets Law Journal, here).  Yet, Puerto Rico and its advisers decided to go down the municipal bankruptcy route, only to get themselves tied up in expensive legal losses for years.  My guess is that there was some political reason for the choices that were made to try and pretend that Puerto Rican debt was more like state debt than sovereign debt.  But I want to know more.

    Second, why was assistance from the IMF not used?  As I understand it, the Oversight Board basically does the kind of job that the IMF does when it goes in to help over indebted countries.  The IMF has developed a lot of expertise in this exercise over the years.  Why aren't there are bunch of ex IMF stalwarts on the Oversight Board, helping out David and his colleagues?  

    Third, while I'm full of admiration for some of the aggressive moves that the Oversight Board took vis-a-vis the creditors in terms of, for example, questioning the validity of 2012 and 2014 issuances that were arguably done in violation of certain debt limits, what calculations were made about how much this strategy would impact Puerto Rico's future cost of borrowing?  After all, one of the key objectives of the Oversight Board is supposed to be to return Puerto Rico to the capital markets. Someday, I'd love to see that the report that the financial advisers provided on this. (It probably pointed to the research showing that the sovereign and municipal debt markets have a notoriously short memory).

    Fourth, what is the world is happening with the Aurelius case? I thought that we'd have a decision on that, in terms of the legality of the Oversight Board under the Appointments Clause, months ago.  Does the delay mean that those of us who predicted — based on what happened at oral argument — that the court was going to rule quickly in favor of the Oversight Board were perhaps wrong? Maybe the delay means that the Court is indeed going to deal with the ugly legacy of the Insular cases, something that they did not seem to want to do in November at the argument? (Yes, I know that David does not have special insight into what the justices are thinking, but I'm curious anyway).

    I can't wait for David's book to come out.  I'll assign it in class and ask him to come back to talk to us again!