Bankruptcy Headlines

Puerto Rico's PREPA Taps Reserve Fund for Quarterly Payment

Puerto Rico's troubled utility, PREPA, made another withdrawal from its reserve account to make a quarterly bond payment on April 1, according to a regulatory filing posted by the utility, Reuters reported yesterday. While the withdrawal amounted to just $8.8 million, the filing posted on Wednesday shows that the utility is remaining current on it debt payments ahead of a much larger bond payment of around $400 million which comes due on July 1 and that some analysts expect PREPA to miss. The bulk of PREPA's more than $8 billion in outstanding debt has biannual bond payments. Three series of revenue bonds have quarterly due dates. They include a floating rate bond and taxable Build America Bonds.

GM Car Owners to Fight on for Billions after Bankruptcy Ruling

General Motors Co. car owners will still seek $7.5 billion for the diminished value of recalled vehicles, despite a ruling that largely freed the automaker from liability for wrongdoing before its 2009 bankruptcy, Bloomberg News reported today. That number was supplied by a lawyer for car owners the day after Bankruptcy Judge Robert Gerber upheld GM’s shield against claims tied to actions taken before its bailout. The attorney, Steve Berman, said that 10 million is a conservative estimate of the number of drivers still eligible to sue for about $750 each after Wednesday’s decision. The litigation stems from last year’s recall of cars for faulty ignition switches, which grew to cover GM vehicles for a number of flaws. The owners can pursue “claims for economic loss caused by New GM’s misconduct in covering up the ignition switch defects and scores of other known defects,” plus damages, Berman said. GM escaped billions more in liability because Judge Gerber also ruled that the company can’t be sued for economic losses tied to so-called Old GM’s actions or over accidents that happened before the bailout.

For more on litigation and liquidation trusts in bankruptcy, be sure to pick up ABI’s A Practitioner's Guide to Liquidation and Litigation Trusts

Blackstone Unit Objects to Optim Energy Bankruptcy-Exit Plan

The energy arm of private equity giant Blackstone Group LP is objecting to Optim Energy LLC’s plan to exit bankruptcy through the sale of its two Texas power plants that it says is designed to benefit only Bill Gates’s private investment firm, the Wall Street Journal reported today. Optim is controlled by the Microsoft co-founder’s Cascade Investment, which has been funding the company’s operations and is backing the chapter 11 plan based on the power plant sales. Lawyers for Walnut Creek Mining, a subsidiary of Blackstone Energy Partners, say that the proposed sale been designed “by and for the benefit of Cascade and Cascade only” and that Optim’s plan shouldn’t win court confirmation. “Congress did not design chapter 11 as a one-way street for the sole lender/equity owner to get all sorts of benefits, including releases, at the effective expense of one creditor,” Walnut Creek’s lawyers said in bankruptcy court papers filed on Wednesday.

Judge Sets Deadline for Minnesota Archdiocese Abuse Victims

The Roman Catholic Archdiocese of St. Paul and Minneapolis won a federal judge's approval yesterday to impose an Aug. 3 deadline for alleged sexual-abuse victims to come forward with claims despite objections from victims' lawyers, Dow Jones Daily Bankruptcy Review reported today. Bankruptcy Judge Robert Kressel said that the August deadline, by which victims must file formal claims for compensation or potentially face challenges from the archdiocese, was not absolute and that claims could still be filed at any time. "This time period can be extended," he said. "That may or may not happen, but it is available."

Caesars Seeks More Time to Control Bankruptcy Case

Caesars Entertainment Operating Co. wants to extend until Nov. 15 the amount of time it has to file its own reorganization proposal without the threat of rival plans, the Wall Street Journal reported today. Caesars on Wednesday requested until Jan. 15, 2016, to solicit votes on any proposal it files. Without an approval from Bankruptcy Judge A. Benjamin Goldgar, Caesars’ exclusive period to file a plan would run out May 15, and the time to solicit votes on such a proposal would run out July 14.

Yet Again, the Tenth Circuit Rejects a Bankruptcy Trustee’s Attempt to Avoid a Mortgage Under a “Splitting-the-Note” Theory

By: Alana Friedberg

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

Recently, in Royal v. First Interstate Bank (In re Trierweiler),[i] the Tenth Circuit held that a mortgage granted in favor of the private electronic database Mortgage Electronic Registration Systems, Inc. (“MERS”), which “record[s] transfers of notes and mortgages,”[ii] was enforceable as to a bankruptcy trustee even though the promissory note was held by a third-party.[iii] In Trierweiler, the debtors took out a loan from and granted a mortgage to First Interstate Bank (“First Interstate”) in order to purchase a home.[iv] The mortgage identified First Interstate as the “lender,” and MERS as both the “mortgagee” and the “nominee for the lender and lender’s successors and assigns.”[v] Sometime thereafter, First Interstate assigned the note to Fannie Mae,[vi] but remained as the servicer for the loan.[vii] The debtors subsequently defaulted on the loan and filed for bankruptcy under chapter 7 of the Bankruptcy Code.[viii] The chapter 7 trustee then sought to avoid the mortgage, using his “strong arm” powers under section 544(a).[ix] In particular, the chapter 7 trustee claimed that MERS “was powerless to foreclose on the property” because it did not hold the note and instead was merely the mortgagee.[x] The trustee also claimed that while Fannie Mae held the note, it “had no ability to enforce the mortgage because it was not listed as the mortgagee in the land records . . . .”[xi] Therefore, the trustee asserted that this “combination rendered the mortgage unenforceable and void as to [him].”[xii] The bankruptcy court, however, rejected the trustee’s arguments and ruled that the mortgage was a properly recorded and enforceable security interest that could not be avoided in bankruptcy.[xiii] On appeal, the Bankruptcy Appellate Panel of the Tenth Circuit[xiv] and the United States Court of Appeals for the Tenth Circuit both affirmed.[xv]