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Puerto Rico Reaches Deal to Access U.S. Disaster Loans

The U.S. Treasury Department and storm-ravaged Puerto Rico say that they have reached a deal to let the bankrupt U.S. territory access billions of dollars in long-disputed federal loans to help it recover from last year’s Hurricane Maria, Reuters reported. In a joint news conference on Thursday in San Juan, broadcast on the internet, Puerto Rico Governor Ricardo Rosselló and U.S. Treasury Secretary Steven Mnuchin said the island can access the so-called community disaster loans (CDLs) as needed until March 2020, once its cash balance dwindles below $1.1 billion. The agreement still needs approval by the federally-appointed board that oversees Puerto Rico’s finances, as well as the judge presiding over its $120 billion bankruptcy. The dispute over the loan had ratcheted up tensions between Puerto Rico and Washington, as the island battles the aftermath of its biggest natural disaster in 90 years, while navigating the largest government bankruptcy in U.S. history. It also raised questions about the reliability of Puerto Rico’s financial record-keeping. The U.S. Congress in October appropriated $4.9 billion in loans for Puerto Rico and the U.S. Virgin Islands, but while the Virgin Islands were allowed access to the funds — and have drawn down around $200 million so far — Puerto Rico was not. Read more

In related news, the U.S. government is scaling back the number of contractors working on Puerto Rico’s storm-damaged electrical grid at a time when roughly 100,000 island residents still lack power, drawing fresh scrutiny from lawmakers over the federal response to Hurricane Maria, WSJ Pro Bankruptcy reported. The House Oversight and Government Reform committee heard testimony yesterday from U.S. officials about bureaucratic challenges to power-restoration efforts in the U.S. territory. Members of Congress from both parties have questioned a drawdown of personnel there by the U.S. Army Corps of Engineers. The Army Corps stepped in after Hurricane Maria struck in September. It hired two contractors, Fluor Corp. and PowerSecure Inc., to spearhead reconstruction of damaged transmission and distribution lines. The companies are now demobilizing workers as those federal contracts reach their limits. Fluor and PowerSecure had 1,141 contract workers in Puerto Rico on Wednesday, down from more than 4,000 during much of February, according to tweets from the official Army Corps Twitter account. Yet electricity woes continue to plague Puerto Rico, where nearly 100,000 customers, on an island of more than three million, still lack service. Nearly all power generation is back online, but the grid system is prone to sudden outages. Gaps in the above-ground transmission system mean electricity isn’t reaching some rugged, mountainous regions. Read more

The people of Puerto Rico need your help. Thousands are still without regular power service, and many more need to rebuild their homes. Please join the ABI Endowment and the Mariano Rivera foundation for a charity benefit for Puerto Rico on April 4, 2018, at the New York Athletic Club.

Toys ‘R’ Us Wins Court Approval to Close U.S. Stores

Toys “R” Us Inc. received bankruptcy court approval Thursday to wind down its U.S. business and close the remainder of its more than 700 stores, WSJ Pro Bankruptcy reported. The liquidation sales are expected to begin as early as Friday throughout the U.S. The closure of the iconic toy stores will leave up to 33,000 Americans without jobs. Toys “R” Us is still holding out hope that some of its U.S. stores will survive, however, according to court papers. Toys “R” Us also won approval from Judge Keith Phillips of the U.S. Bankruptcy Court in Richmond, Va., to put its Canadian business up for sale. The Canadian sale process comes with the option to add on 200 U.S. stores — the best-performing side-by-side Toys “R” Us and Babies “R” Us stores — in hopes of keeping the American chain alive. Last week, Toys “R” Us announced it would close its entire U.S. chain after hopes of reorganizing the company’s hefty debt load and surviving the bankruptcy filing were diminished after disappointing holiday sales. Read more.

In related news, charles Lazarus, the founder and original CEO of Toys “R” Us, died yesterday at the age of 94, reported. Lazarus opened a children’s furniture store in 1948 and founded the original incarnation of Toys “R” Us in 1957. He served as the chain’s CEO until 1994. Read more

Occupancy issues are at the heart of many significant retail cases, as detailed in the forthcoming ABI publication Retail and Office Bankruptcy: Landlord/Tenant Rights, available for pre-order at the ABI Store. 

Explore various strategies on how the tough times ahead for clients in the newspaper, brick-and-mortar retail or coal industries can be addressed in a bankruptcy, whether through a restructuring or a wind-down and liquidation of the company. Make sure to attend the "Obsolescence as a Catalyst" session at the Annual Spring Meeting

First Clergy Abuse Settlement Approved in Minnesota

A $25 million settlement between the Crosier religious order and victims of clergy sexual abuse was approved by a bankruptcy judge yesterday, becoming the first such settlement adopted in Minnesota, the Minneapolis Star Tribune reported. An objection filed last week by the Archdiocese of St. Paul and Minneapolis was withdrawn after the parties added language protecting the archdiocese from possible future lawsuits involving Crosier clergy. The Crosiers, the abuse victims and their attorneys attributed the swift settlement to a spirit of cooperation and respect that shaped settlement discussions. Sixty-seven abuse victims filed claims in bankruptcy court against the Phoenix-based religious order, which has a community in the Minnesota town of Onamia. Most of the sex abuse occurred between the 1960s and 1980s. It involved teenage boys at the Crosiers' boarding school and young altar boys who served at the Holy Cross Church next door.

CFPB Quietly Drops Payday Loan Case, Mulls Others

The top cop for U.S. consumer finance has decided not to sue a payday loan collector and is weighing whether to drop cases against three payday lenders, Reuters reported. The payday loan cases are among about a dozen that Richard Cordray, the former agency chief, approved for litigation before he resigned in November. Cordray was the first to lead the agency that Congress created in 2010 after the financial crisis. The four previously unreported cases aimed to return more than $60 million to consumers. Three are part of routine CFPB work to police storefront lenders. The fourth case concerns who has a right to collect payday loans offered from tribal land. Cordray was ready to sue Kansas-based National Credit Adjusters (NCA), which primarily collects debt for online lenders operating on tribal land. The companies have argued such loans are permitted when they are originated on tribal land. The CFPB under Cordray concluded that NCA had no right to collect on such online loans, no matter where they were made. Mick Mulvaney, interim head of the Consumer Financial Protection Bureau (CFPB), has dropped the matter and the case is “dead,” Sarah Auchterlonie, a lawyer for NCA, told Reuters this week. She noted the agency appeared to be backing off issues involving tribal sovereignty.

Health Care Bankruptcy Leaves Big Law in the Lurch

Citing fictitious subsidiaries and potential fraud, health services company Constellation Healthcare Technologies Inc. and its subsidiaries filed for bankruptcy on March 16 in Central Islip, New York, owing nearly $4 million to four law firms, the American Lawyer reported. DLA Piper and Thomas Califano, U.S. co-chair of the global legal giant’s restructuring practice, are advising the debtor in its chapter 11 case. The collapse of the medical billing company comes a little more than a year after it was taken private following a $309.4 million sale to its founder Parmjit “Paul” Parmar and CC Capital Management LLC, a private investment firm started in 2015 by Chinh Chu, a former top dealmaker at buyout giant The Blackstone Group LP. Constellation, which on its website lists a headquarters in Houston but in bankruptcy court filings states it is based in Middletown, New Jersey, also does business as Orion Healthcorp Inc. The debtor lists assets of between $1 million and $10 million, according to bankruptcy court records, which show Constellation’s liabilities at between $100 million to $500 million.

Texas Retirement-Community Operator Enters Bankruptcy

A New Braunfels, Texas-based nonprofit company that provides housing and health care to more than 300 residents and patients has sought bankruptcy protection, the San Antonio Express-News reported. Eden Home Inc., which does business as EdenHill Communities, filed chapter 11 last on March 16 after defaulting on about $52.6 million in bonds used to finance construction of 103 apartments, a health center and other improvements. An agreement with bondholders to delay a foreclosure expired, prompting them to direct the bond trustee to “exercise remedies,” Eden Home CEO Laurence Dahl said in a court filing accompanying the bankruptcy petition. The bondholders hold a lien against Eden Home’s real estate and personal property. Dahl blamed construction defects and delays for Eden Home’s financial troubles. It is mired in litigation with the contractor. Eden Home has yet to file schedules of all of its assets and liabilities, but reported both categories are in the range of $10 million to $50 million.