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Analysis- PREPA Weighs Heavily on Solutions to Puerto Rico's Debt Crisis

 
 

July 28, 2015

 
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  NEWS AND ANALYSIS

ANALYSIS: PREPA WEIGHS HEAVILY ON SOLUTIONS TO PUERTO RICO'S DEBT CRISIS

PREPA, Puerto Rico's government-owned electric utility, has $9 billion in debt, electricity rates that run 2 1/2 times the national average and aging power plants that lack pollution controls and violate Environmental Protection Agency mercury limits, according to a Washington Post analysis on Sunday. The utility lies at the epicenter of a mounting financial crisis in Puerto Rico, as the territory's governor recently called the island’s $73 billion of debts "unpayable." A report issued by three veteran International Monetary Fund economists said that the utility’s poor performance not only ruined its own balance sheet but also undermined the Puerto Rican economy's competitiveness because of needlessly high electricity rates. "As a key input cost, this cascades down to locally produced goods and services and stunts potential growth sectors such as tourism," the report said. Three-quarters of the utility’s trucks are "obsolete" and frequently out of service, according to a presentation by Lisa J. Donahue, a managing director of New York-based AlixPartners who is now acting as the utility’s restructuring officer. Donahue has vowed to fix the trucks and shrink the bloated payroll, which is twice as big as the average utility payroll on the mainland, according to a June 2010 report by the Center for a New Economy. Read more.

The August ABI Journal features an exclusive commentary from Puerto Rico's representative in Congress, Resident Commissioner Pedro R. Pierluisi. He outlines Puerto Rico's problems and how his legislation, H.R. 870, works to address them by authorizing chapter 9 for the territory. Thursday's Bankruptcy Brief will have an excerpt of Pierluisi's commentary.

A related commentary on CNBC.com today said that as Puerto Rico is now pursuing a voluntary debt restructuring, it especially wants access to chapter 9 to address any potential holdouts. However, several Republicans in the GOP-controlled Congress view extending chapter 9 in this instance as tantamount to a "bailout," a concept that does not sit well in Washington these days, particularly among conservatives. Holders of debt in Puerto Rican public agencies, like the Puerto Rico Electric Power Authority (PREPA), have vehemently argued that giving PREPA and other such island organizations chapter 9 protection would be tantamount to changing the rules in the middle of the game, and condoning past fiscal profligacy. Moreover, members of Congress and presidential candidates seizing on the issue for political gain threaten to give Puerto Rico's chapter 9 a partisan tinge, making it more difficult to attract sufficient bipartisan support, according to the commentary. Read the full commentary.

SEC POISED TO COMPLETE CEO PAY-RATIO RULE

Regulators are poised to complete a rule requiring companies to disclose the pay gap between chief executives and employees, putting in place a measure without broad exclusions sought by companies, the Wall Street Journal reported today. The Securities and Exchange Commission is expected to allow companies to exclude 5 percent of their overseas workers from the pay-ratio calculation. Companies had pressed to exclude a much larger percentage of foreign workers, which likely would have narrowed the pay gap that some businesses report. Under the rule, which the SEC could vote on as early as the first week of August, companies would have to disclose median worker pay -- the point on the income scale at which half their employees earn more and half earn less -- and compare it with CEO compensation. A mandate of the 2010 Dodd-Frank financial law, the pay-ratio rule could put added pressure on corporate boards to slow pay increases for chief executives at companies with significant or growing gaps, proponents have said. SEC Chairman Mary Jo White is under pressure from Sen. Elizabeth Warren (D-Mass.) and other Democratic lawmakers to complete the measure, as well as other unfinished portions of the Dodd-Frank law. Read more. (Subscription required.)

In related news, the House Financial Services Committee held a hearing today titled, "The Dodd-Frank Act Five Years Later: Are We More Prosperous?" Click here to read the prepared witness testimony.

FED OFFICIALS MAY OFFER MORE CLARITY ON RATES

Federal Reserve officials are likely to emerge from their policy meeting tomorrow with short-term interest rates still pinned near zero, though they could send fresh hints that they're getting closer to raising rates, the Wall Street Journal reported yesterday. Fed Chairwoman Janet Yellen emphasized in congressional testimony earlier this month that she expects the central bank to start lifting its benchmark federal-funds rate at some point before year's end. Her comments and other recent public statements by Fed officials have made clear that July is too soon. Although the economy is growing moderately after contracting in the first quarter and employers are hiring at a solid pace, inflation remains stubbornly below the Fed's two percent target and officials want to be more confident that it is going to rise before acting. Read more. (Subscription required.)

U.S. CONSUMER CONFIDENCE FALLS BACK SHARPLY IN JULY

Consumers unexpectedly took a dimmer view of the U.S. economy this month, as the Conference Board, a private research group, said today that its index of consumer confidence plunged to 90.9 in July from a revised 99.8 in June, the Wall Street Journal reported today. Consumer expectations for economic activity over the next six months plunged to 79.9 from a revised 92.8, originally reported as 94.6. The board's survey found that 20.7 percent of consumers this month think jobs are "plentiful," versus 21.3 percent who thought that in June. The share of respondents anticipating more jobs in the next six months fell to 13.1 percent in July from 17.1 percent in June. The share expecting fewer jobs jumped to 20.0 percent from 15.2 percent. Read more. (Subscription required.)

NEXT TUESDAY: ABI WORKSHOP TO FEATURE BANKRUPTCY JUDGES EXAMINING COMMISSION RECOMMENDATIONS ON RESOLVING COURT SPLITS

Which Chapter 11 Reform Commission recommendations are most likely to be well received by judges? The 2015 Bankruptcy Judges Roundtable, an ABI Workshop, will take place at ABI headquarters on Aug. 4 to examine the Chapter 11 Reform Commission's recommendations on resolving court splits. The Commission identified more than 30 splits in case law on important bankruptcy issues. Attend the program from 3:00-4:30 p.m. ET in person or via live webstream to hear five bankruptcy judges discuss the recommendations and issues surrounding the court splits. Speakers on the program are Bankruptcy Judges Dennis R. Dow (D. Mo.), Bruce A. Harwood (D. N.H.), Barbara J. Houser (N.D. Texas), C. Ray Mullins (N.D. Ga.) and Eugene R. Wedoff (N.D. Ill.). ABI will seek 1.5 hours of general CLE credit in 60-minute-hour states and 1.5 hours of credit in 50-minute-hour states for the program. A networking reception will follow from 5-7 p.m. ET for in-person attendees, and registration for just the reception is also available. Click here to register.

ABI WANTS TO SEE YOU IN PHOENIX THIS DECEMBER FOR THE WINTER LEADERSHIP CONFERENCE!

Join ABI on Dec. 3-5, 2015, at the historic Arizona Biltmore in downtown Phoenix for the 27th Annual Winter Leadership Conference. This can’t-miss event is always a member favorite, and this year will be no exception! There will be topics designed for consumer and business practitioners, as well as financial advisors. Earn up to 12/14 hours of CLE/CPE credit and 2.75/3 hours of ethics, and enjoy a plethora of social and networking events.

Highlights from the conference include:

  • Optional events, including a golf tournament, kayaking, tennis, horseback riding and much more
  • Great Debates on chapter 11 plans, whether a bankruptcy judge can disband a creditors’ committee and must a creditor file a proof of claim
  • BAPCPA Consumer Issues: 10-Year Anniversary Special
  • Nine joint committee sessions, provided by ABI’s 18 committees
  • A live Bloomberg “Eye on Bankruptcy” luncheon presentation
  • A special Casino Night!
  • A judges’ roundtable on hot-button issues
Early-bird registration ends Oct. 2, so be sure to register to take advantage of the savings!

 

NEW CASE SUMMARY ON VOLO: GREEN POINT CREDIT LLC V. MCLEAN (IN RE MCLEAN; 11TH CIR.)

Summarized by Kathleen DiSanto of Jennis & Bowen, P.L.

The Eleventh Circuit concluded that Green Point Credit, LLC and Green Tree Servicing, LLC (collectively, "Green Tree") violated the discharge injunction by filing a proof of claim in the debtors' chapter 13 bankruptcy case in an effort to collect a debt that was discharged in their prior chapter 7 case, but vacated the monetary sanctions awarded by the bankruptcy court and affirmed by the district court and remanded to the district court with instruction to vacate and remand to the bankruptcy court.

There are more than 1,800 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: SDNY SIDES WITH FIFTH CIRCUIT AND THE UNCITRAL MODEL LAW WHEN GRANTING RECOGNITION TO OAS

A recent blog post examined the U.S. Bankruptcy Court for the Southern District of New York's decision on July 13 in In re OAS S.A. et al. that recognized, as foreign main proceedings, three Brazilian bankruptcy proceedings currently pending for The OAS Group ("OAS") -- a Brazilian construction and engineering enterprise. To read more on this blog and all others on the ABI Blog Exchange, please click here.

For more on chapter 15 recognition and analysis of the UNCITRAL Model Law, be sure to pick up a copy of ABI’s Chapter 15 for Foreign Debtors.

ATTENDING AN ABI CONFERENCE? MAXIMIZE YOUR EXPERIENCE WITH THE OFFICIAL ABI EVENTS APP!

With this interactive mobile app, you can:

- View a complete listing of ABI events
- View the full schedule for specific ABI conferences, including all educational sessions and networking and optional events
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- Create your own profile, message other conference attendees, post photos and view up-to-the-minute schedule changes for ABI conferences
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Everything you need to attend ABI events is a few taps away: Download the ABI Events app today!

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ABI thanks Donlin, Recano & Co. for its generous sponsorship of the ABI Events app.

INSOL INTERNATIONAL

INSOL International is a worldwide federation of national associations for accountants and lawyers who specialize in turnaround and insolvency. There are currently 23 member associations worldwide with more than 9,800 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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UPCOMING EVENTS:

ABI Workshop: 2015 Bankruptcy Judges Roundtable
Aug. 4, 2015
Register Today!

11th Annual Mid-Atlantic Bankruptcy Workshop
Aug. 6-8, 2015
Register Today!

23rd Annual Southwest Bankruptcy Conference
Sept. 10-12, 2015
Register Today!

41st Lawrence P. King & Charles Seligson Workshop on Bankruptcy and Business Reorganization
Sept. 16-17, 2015
Register Today!

20th Annual Views from the Bench Conference
Oct. 9, 2015
Register Today!

7th Circuit Consumer Bankruptcy Conference
Oct. 12, 2015
Register Today!

35th Annual Midwestern Bankruptcy Institute
Oct. 15-16, 2015
Register Today!

Corporate Restructuring Competition
Nov. 5-6, 2015
Register Today!

Complex Financial Restructuring Program
Nov. 5, 2015
Register Today!

11th Annual Detroit Consumer Bankruptcy Conference
Nov. 11, 2015
Register Today!

27th Annual Winter Leadership Conference
Dec. 3-5, 2015
Register Today!

5th Annual ABI/St. John’s Bankruptcy Mediation Training Program
Dec. 6-10, 2015
Register Today!

 
   
  CALENDAR OF EVENTS
 

2015

August
- Mid-Atlantic Bankruptcy Workshop
Aug. 6-8, 2015 | Hershey, Pa.
- ABI Workshop: Bankruptcy Judges Roundtable
Aug. 4, 2015 | Alexandria, Va.

September
- Southwest Bankruptcy Conference
Sept. 10-12, 2015 | Las Vegas, Nev.
- Lawrence P. King & Charles Seligson Workshop on Bankruptcy and Business Reorganization
Sept. 16-17, 2015 | New York, N.Y.

October
- Views from the Bench Conference
Oct. 9, 2015 | Washington, D.C.
- 7th Circuit Consumer Bankruptcy Conference
Oct. 12, 2015 | Chicago, Ill.
 

 

 


- Midwestern Bankruptcy Institute
Oct. 15-16, 2015 | Kansas City, Mo.

November
- Corporate Restructuring Competition
Nov. 5-6, 2015 | Philadelphia, Pa.
- Complex Financial Restructuring Program
Nov. 5, 2015 | Philadelphia, Pa.
- Detroit Consumer Bankruptcy Conference
Nov. 11, 2015 | Detroit, Mich.

December
- Winter Leadership Conference
Dec. 3-5, 2015 | Phoenix, Ariz.
- ABI/St. John’s Bankruptcy Mediation Training Program
Dec. 6-10, 2015 | New York, N.Y.

 

 
 
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