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Analysis: Feds Offer Puerto Rico Advice, But No Bailout

 

 

 
 

May 7, 2015

 
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  NEWS AND ANALYSIS

ANALYSIS: FEDS OFFER PUERTO RICO ADVICE, BUT NO BAILOUT

Just as lawmakers in 2013 opposed a federal bailout of Detroit, and the Obama administration didn't step in to prevent the largest municipal bankruptcy in U.S. history, the U.S. Treasury is striking a similar stance toward Puerto Rico and its unsustainable debt, Bloomberg News reported today. What Treasury officials are offering Puerto Rico is advice on how to help ease its fiscal burdens and ensure that the U.S. territory receives all federal funding it's eligible for -- about $6 billion a year. More extensive aid, such as loan guarantees requiring congressional approval, is unpopular with lawmakers, and it’s unlikely that the federal government will aid Puerto Rico after refusing to help Detroit, investors said. "I can't see any way that they would do that when they didn't do it for Detroit," said Brandon Barford, partner at Beacon Policy Advisors LLC in Washington, D.C., and a former Senate Banking Committee staffer. Instead, the Obama administration is making a special effort to support the $100 billion Puerto Rican economy by helping the commonwealth and its residents take full advantage of aid that's available to it through programs such as Social Security and Medicaid, and funds for nutrition, education and agriculture. Another channel is financing infrastructure expenditures with federal money, which allows the Puerto Rican government to use its own funds elsewhere, said Daniel Hanson, an analyst at Height Securities LLC, a Washington-based broker-dealer. Read more.

In related news, oral argument began yesterday in the U.S. Court of Appeals for the First Circuit regarding Puerto Rico Electric Power Authority's (PREPA) appeal to reverse a federal court decision in February to block the Puerto Rico Public Corporation Debt Enforcement and Recovery Act. The Act, passed last year by lawmakers in Puerto Rico, was intended to give PREPA breathing room as it slipped into financial crisis since the territory is not eligible to file for chapter 9 bankruptcy. But OppenheimerFunds, a unit of insurer MassMutual Financial Group and Franklin Templeton, immediately sued the utility and argued that the recovery act violates the U.S. Constitution. To listen to yesterday's oral argument before the U.S. Court of Appeals for the First Circuit, please click here.

Puerto Rico Resident Commissioner Pedro Pierluisi issued a statement regarding yesterday's oral argument before the U.S. Court of Appeals for the First Circuit on the constitutionality of the "Puerto Rico Public Corporation Debt Enforcement and Recovery Act," and highlighted that the arguments made by the plaintiff bondholders in that case undercut the arguments these same bondholders are making to oppose Pierluisi's bill (H.R. 870) to include Puerto Rico in chapter 9 of the federal Bankruptcy Code. Click here to read the statement.

BANKERS AND REGULATORS VOICE FEARS ON BOND MARKET VOLATILITY

In recent months, Wall Street chieftains, huge investment firms and top bank regulators have been warning that the world's bond markets, where companies and countries borrow trillions of dollars, are in danger of breaking down, the New York Times DealBook blog reported yesterday. Their fear is that in an event like a surprise increase in interest rates, trading could rapidly dry up, causing violent movements in bond prices and even disrupting the functioning of the market. According to this view, the destabilizing volatility in the bond market could make it harder and more expensive for companies and countries to borrow. Bankers and asset managers, after all, might be tempted to overstate their concerns, with an eye on their bottom lines. Yet the caution is also coming from prominent regulators, like Mark Carney, governor of the Bank of England, and the units at the International Monetary Fund and the U.S. Treasury Department that are tasked with scouring the globe for financial threats. Read more.

"FLASH CRASH" OVERHAUL IS SNARLED IN RED TAPE

A giant data project at the center of the regulatory response to the 2010 "flash crash" that sent the Dow plummeting nearly 1,000 points is years behind schedule and mired in red tape, the Wall Street Journal reported today. The Consolidated Audit Trail (CAT) originally was conceived as a way to enable regulators to monitor stock and options orders in real time and zero in on manipulators quickly. After the flash crash -- which occurred May 6, 2010, and saw some big stocks lose nearly all their value before markets rebounded -- the CAT was seen as a crucial step in protecting the markets from future swings. Yet the 10 organizations overseeing the process, including Nasdaq OMX Group Inc. and Intercontinental Exchange Inc., which operates the New York Stock Exchange, still haven't chosen a firm to build and run it, and a final plan hasn't been approved by the Securities and Exchange Commission. Read more. (Subscription required.)

ANALYSIS: MORE RETIREES OPTING TO KEEP MORTGAGE PAYMENTS

Maybe their parents paid off the house before retiring, but many baby boomers today say that it makes more sense to carry a mortgage, according to a Wall Street Journal analysis today. Older Americans may come out ahead by keeping 401(k)s and other holdings invested rather than cashing out to make a house payment, says Tom Wind, executive vice president of home lending at Jacksonville, Fla.-based EverBank. Reflecting that more active, long-range perspective, 64 percent of today's retirees say that they are likely to move at least once, according to a study released in February by Merrill Lynch and Age Wave. Of these, 37 percent have already moved and 27 percent anticipate doing so. Many older home buyers have the means to pay all cash, but either on the advice of their financial adviser or their own decision, they choose to take out a loan, says Peter Grabel, managing director of Stamford, Conn.-based Luxury Mortgage. Read more. (Subscription required.)

NEWEST ABI TITLE EXAMINES CREDIT-BIDDING IN BANKRUPTCY SALES!

Make sure to pre-order a copy of Credit-Bidding in Bankruptcy Sales: A Guide for Lenders, Creditors, and Distressed-Debt Investors, the newest title available for purchase in ABI's Bookstore. Although credit-bidding -- in which the secured creditor can credit-bid the amount of its allowed claim in any sale of its collateral by its debtor -- is acknowledged as being an important part of the secured creditor's bundle of rights, some argue that in certain circumstances credit-bidding can chill bidding or otherwise prevent the debtor from maximizing the value of its assets. Credit-Bidding in Bankruptcy Sales details how the courts have handled this debate, with reference to specific cases such as Fisker and Free Lance-Star, and also provides practitioners with the information that they need to know when reviewing credit agreements, debtor-in-possession financing orders and sale orders related to credit-bidding. The book also includes an in-depth analysis of how credit-bidding affects professional fees. Click here to purchase (make sure to log in to receive the discounted ABI member price).

DISCOUNTED SUBSCRIPTIONS TO AUDIO ABI JOURNAL AVAILABLE FROM MODIOLEGAL!

Subscribe now to our new streaming audio Journal, offered by ModioLegal. Narrated articles from each issue of the ABI Journal can now be accessed through your web browser -- on your computer, smartphone, or tablet -- for a low monthly fee. For a limited time, subscribe to this new service now for just $9.95 a month (regularly $12.95) with coupon code abi-early. Sign up for any audio Journal plan, and your first month is free! Go to http://www.modiolegal.com/subscribe to learn more, or send an email to accounts@modiolegal.com for a free demo.

NEW CASE SUMMARY ON VOLO: ROSEMANN V. SIGILLITO (8TH CIR.)

Summarized by Lars Fuller of BakerHostetler

The Eighth Circuit affirmed the decision of the U.S. District Court (E.D. Mo., St. Louis) granting summary judgment in favor of the defendant in a legal malpractice claim brought by a former client against a disbarred attorney. The Eighth Circuit agreed that in a negligence case, Missouri law required expert testimony about the duty of care owed. Because the plaintiff failed to provide an expert by the conclusion of discovery, the trial court properly granted the defendant's motion for summary judgment.

There are more than 1,700 appellate opinions summarized on Volo, and summaries typically appear within 24 hours of the ruling. Click here regularly to view the latest case summaries on ABI's Volo website.

NEW ON ABI'S BANKRUPTCY BLOG EXCHANGE: FURTHER EXAMINATION OF THE SUPREME COURT'S RULING IN BULLARD

A recent blog post takes an in-depth look at the Supreme Court's ruling yesterday in Bullard v. Blue Hills Bank. The Court unanimously ruled that an order denying confirmation but not dismissing a bankruptcy case is not a "final" order that the debtor can immediately appeal.

To read more on this blog and all others on the ABI Blog Exchange, please click here.

INSOL INTERNATIONAL

INSOL International is a worldwide federation of national associations for accountants and lawyers who specialize in turnaround and insolvency. There are currently 43 member associations worldwide with more than 9,000 professionals participating as members of INSOL International. As a member association of INSOL, ABI's members receive a discounted subscription rate. See ABI's enrollment page for details.

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  CALENDAR OF EVENTS
 

2015

May
- New York City Bankruptcy Conference
May 14, 2015 | New York, N.Y.
- Forty-Hour Bankruptcy Mediation Training
May 17-21, 2015 | New York, N.Y.
- Litigation Skills Symposium
May 19-22, 2015 | Chicago, Ill.

June
- Memphis Consumer Bankruptcy Conference
June 5, 2015 | Memphis, Tenn.
- Central States Bankruptcy Workshop
June 11-14, 2015 | Traverse City, Mich.
- Cross-Border Insolvency Program
June 18, 2015 | New York

July
- Northeast Bankruptcy Conference
July 9-12, 2015 | North Falmouth, Mass.
- Northeast Consumer Bankruptcy Forum
July 9-11, 2015 | North Falmouth, Mass.

 

 



- Beijing Insolvency & Restructuring Symposium
July 13-14, 2015 | Beijing, China
- Southeast Bankruptcy Workshop
July 23-26, 2015 | Amelia Island, Fla.

August
- Mid-Atlantic Bankruptcy Workshop
Aug. 6-8, 2015 | Hershey, Pa.

September
- Southwest Bankruptcy Conference
Sept. 10-12, 2015 | Las Vegas, Nev.

 

 
 
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