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Puerto Rico's Top Adviser Debates Bond Insurer on Bankruptcy

ABI Bankruptcy Brief
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February 11, 2016

ABI Bankruptcy Brief


Puerto Rico's Top Adviser Debates Bond Insurer on Bankruptcy

The question of whether bankruptcy is a good option for Puerto Rico came to a head at an investor conference featuring the island's top restructuring adviser and head of one of the bond insurers with the most exposure to the commonwealth's securities, Bloomberg News reported today. Jim Millstein, founder of Millstein & Co. and the commonwealth's restructuring expert, said that bankruptcy would help bring all creditors together to make concessions. Nader Tavakoli, the chief executive officer of Ambac Financial Group, which guarantees repayment on $10.4 billion of Puerto Rico principal and interest payments through 2054, disagrees. The island needs to reduce spending and must repay its obligations, Tavakoli said.

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In related news, the Puerto Rico Senate has approved the PREPA Revitalization Act, intended to restructure the country's debt-laden power utility, Reuters reported yesterday. The bill now moves to the Puerto Rico House of Representatives, which would need to approve it before it could become law. "This legislation provides PREPA with critical tools to make PREPA the modern utility that Puerto Rico needs and deserves," the company said yesterday. PREPA, with more than $8 billion in debt, reached a restructuring deal in December with about 70 percent of its creditors.

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For more news and analysis of Puerto Rico's debt crisis, be sure to visit ABI's "Puerto Rico in Distress" webpage.

ABI Podcast: Delays and Lack of Clear Restructuring Plan Continue to Hinder Puerto Rico Recovery Effort

The latest ABI podcast features ABI Resident Scholar Prof. Melissa Jacoby talking with sovereign debt experts Profs. Mitu Gulati of Duke University School of Law and Anna Gelpern of Georgetown University School of Law about Puerto Rico's spiraling financial distress. Gulati and Gelpern compare Puerto Rico's financial situation to recent sovereign debt crises, and examine current restructuring proposals for Puerto Rico.

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House Judiciary Committee Passes Bankruptcy Alternative for Large Banks

The House Judiciary Committee today passed (25-0) H.R. 2947, the "Financial Institution Bankruptcy Act (FIBA)." The bill proposes to create new provisions in the Bankruptcy Code to wind down a failing large bank with more than $50 billion in assets. Intended to provide an alternative to the Dodd-Frank Act's orderly liquidation process, the bill adds a new subchapter V to chapter 11 of the Bankruptcy Code to address the resolution of financial institutions, including large, multi-national financial firms. A similar bill passed the House in the 113th Congress. Click below to read the bill text.

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Report: U.S. Oil Bankruptcies Spike 379 Percent in 2015

At least 67 U.S. oil and natural gas companies filed for bankruptcy in 2015, according to consulting firm Gavin/Solmonese, representing a 379 percent spike from the previous year, reported today. With oil prices crashing further in recent weeks, five more energy gas producers succumbed to bankruptcy in the first five weeks of this year, according to Houston law firm Haynes and Boone. This dramatic increase in bankruptcy filings corresponds with the plunge in oil prices from over $100 a barrel in mid-2014 to below $27 today. It also reflects the drop in natural gas prices, which are near 14-year lows. Revenues have dropped, choking off cash flows and making it challenging for companies to pay off all that debt. Companies have responded by cutting jobs and slashing spending, but some of the more leveraged ones have been forced to resort to bankruptcy.

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Will exploration and production hit bottom in 2016? Be sure to attend ABI's Annual Spring Meeting in Washington, D.C., from April 14-17, as a panel of experts will be addressing this topic. Register today- rates go up tomorrow!

Op-Ed: The 1 Percent Rule Needs Fixing

by Kenneth A. Rosen of Lowenstein Sandler LLP (Roseland, N.J.)

Conflicts inevitably arise within law firms. Those familiar with chapter 11 likely know about the "1 percent rule," which requires law firms to disclose if a secured creditor accounts for more than 1 percent of its annual revenues. Less than 1 percent is deemed "de minimus," or inconsequential, in that representing the creditor is considered either conflict-free or, more likely, an acceptable level of conflict. While courts should recognize the inevitability of some conflicts and should apply the 1 percent rule generally, the rule should require greater disclosure and should be subject to a more thorough analysis of conflict under the specific facts of the case.

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Have You Seen Rochelle's Daily Wire? Don't Miss the Insights and Analyses of Important Case Decisions!

ABI Editor-at-Large Bill Rochelle provides his exclusive perspectives and analyses of important case decisions. New summaries appearing on today's Daily Wire include:

- Claim Buyer Doesn't Acquire Seller's Insider Status, Ninth Circuit Holds

Tap into Rochelle's Daily Wire via the ABI Newsroom, Daily Headlines e-mail and Twitter!

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New on ABI's Bankruptcy Blog Exchange: Secured Creditors Beware: Liability Lurks in Lockboxes

Lenders and secured creditors often require that debtor-customers direct all receivable collections into a lockbox, hoping to wrangle any available proceeds to apply to their debtors' outstanding debt. In requiring a debtor or its customer to remit payments to a lockbox, however, creditors may be overlooking a potential source of significant liability.

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

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