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Group Proposes Investing $3.5 Billion in Puerto Rico Utilities

A consortium of York Capital Management, NRG Energy Inc and ITC Holdings Corp have proposed investing as much as $3.5 billion in Puerto Rico's electrical infrastructure, Reuters reported yesterday. The island's electricity is supplied by struggling electric power authority PREPA, which has debt of around $9 billion and is due to present creditors with a business plan on Monday. The proposed investment would be for a total of $2.5 billion to $3.5 billion and would be subject to due diligence. PREPA, which provides electricity to Puerto Rico's roughly 3.5 million residents, charges consumers around double the average rate customers pay in the U.S. mainland. It is under pressure to convert from burning oil to generate power to generally cheaper and cleaner natural gas.

Stockton, Calif., Argues Against Appeal of Its Bankruptcy Plan

Stockton, Calif., urged an appellate court yesterday to back the city's exit from municipal bankruptcy after a holdout creditor appealed its plan, Reuters reported. Stockton said in a court brief yesterday that the creditor, two funds managed by Franklin Templeton Investments, was trying to re-litigate its case using the same flawed legal arguments that a U.S. federal bankruptcy court judge had already rejected. Franklin filed the opening brief to its appeal with the U.S. Bankruptcy Appellate Panel of the Ninth Circuit in March, claiming that it would receive less than 1 percent of its unsecured claim and that "no bondholder has ever received so little in the history of municipal bankruptcy." Stockton argued that the city "has slashed costs, imposed new taxes, and otherwise done everything it could to propose a plan that pays creditors fairly while ensuring that the city would emerge from bankruptcy on stable financial footing."

Detroit Bankruptcy Judge Concerned About Unfunded Pensions in Other Municipalities

The federal judge who oversaw Detroit’s historic bankruptcy case said yesterday that he is “deeply concerned” about unfunded pension liabilities in other Michigan municipalities and they should consider transitioning to 401(k) retirement plans for employees, the Associated Press reported yesterday. Steven Rhodes, who retired in February, told a crowd at the Detroit Regional Chamber’s Mackinac Policy Conference that the city is not the only one trying to figure out how to make good on promised pension payments to current and future retirees. He said that it is crucial that local governments make their pension plan contributions, which he said seems “obvious” but was not happening in Detroit before it filed for bankruptcy. Cities also tend to understate how much they will owe by assuming “too high” investment returns, he said.

U.S. Judge Puts GM Ignition-Switch Suits on Ice, for Now

A U.S. bankruptcy judge on Wednesday put on hold dozens of lawsuits accusing General Motors Co. of concealing an ignition-switch defect while the plaintiffs in those cases appeal an earlier ruling that found their cases were barred, Reuters reported yesterday. GM had argued that claims for vehicles predating its 2009 exit from chapter 11 bankruptcy should be dismissed, following Bankruptcy Judge Robert Gerber’s April 15 ruling that the company was shielded from those claims by the terms of its bankruptcy. Plaintiffs said that the cases should be stayed pending a resolution of their appeal. Judge Gerber said on Wednesday that it would be procedurally “cumbersome” to dismiss the cases, as GM requested, in case a higher court overturned his decision. Instead, the cases would be “simply stayed for the time being.” Gerber added that, if his decision was upheld, GM could renew its request.

Former Partner Says Dewey & LeBoeuf Got Stuck in Debt Cycle

A former partner at Dewey & LeBoeuf LLP testified yesterday that the firm got caught in a never-ending debt cycle after the economic downturn, shedding light on how the once-august legal outfit spiraled into bankruptcy, the Wall Street Journal reported today. During testimony in a criminal trial against Dewey’s three former leaders, former high-level partner Jane Boisseau told a jury that once Dewey failed to meet its compensation targets in 2008, it started a system of borrowing from the next year to pay debts owed from the prior one. “The firm couldn’t afford to disappoint these major producers of business,” said Boisseau, explaining why the firm authorized the system of payments. Unable to make up its debts, Dewey filed for bankruptcy in May 2012.