Hedge Funds Sue Puerto Rico And Its Governor

On July 20, 2016, a group of hedge funds holding Puerto Rico’s most senior public debt – general obligation bonds and debt guaranteed by the commonwealth – sued the island and its Governor, Alejandro Garcia Padilla, saying the island siphoned money away from bondholders in breach of the new U.S. law entitled the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA), which, as previously reported, was signed by President Barack Obama on June 30, 2016.1

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Congress Passes Puerto Rico Debt Relief Law

As previously reported, the U.S. House of Representatives on June 9th of this year approved legislation, entitled the “Puerto Rico Oversight, Management and Economic Stability Act,” (PROMESA), to stem the escalating debt crisis in Puerto Rico creating a federal financial control oversight board to help the island cope with its $72 billion in outstanding debt.1

The U.S. Senate approved the legislation on June 29 and President Barack Obama signed the PROMESA bill on June 30, 2016.

The legislation was passed by a bipartisan bid to salvage a debt-laden Puerto Rico. It would not have happened without House Speaker Paul Ryan’s determination, intense engagement with his conservative bloc, an awareness of the need to work with his Democratic counterpart, and a focus on Hispanics that he developed while serving as Mitt Romney’s 2012 running mate. Mr. Ryan also had pledged to work with House Minority Leader Nancy Pelosi.

Mr. Ryan guided the legislation through a series of make-or-break impasses.

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U.S. House Passes Puerto Rico Debt Crisis Bill

On June 9, 2016, the United States House of Representatives approved legislation to stem the escalating debt crisis, after an unusually bi-partisan course on a fraught and technically complex compromise measure. After months of internal wrangling, the House passed legislation creating a federal control oversight board to help the Commonwealth of Puerto Rico cope with crippling debt that is wreaking havoc throughout the island’s economy and its services to residents.

The bill, entitled the “Puerto Rico Oversight, Management and Economic Stability Act,” (PROMESA), which was introduced in May and must still pass the Senate, establishes a process to handle what is shaping up as the largest municipal debt workout in U.S. history.

Supporters praised PROMESA for not using taxpayer funds to help the island restructure its debt. Failure to pass it, they warned, could put Congress in the difficult position of ultimately overseeing a massive bailout of Puerto Rico.1

As previously reported, Puerto Rico is a territory of the United States, and unlike American states and cities, is not permitted by law to file under Chapter 9 of the Bankruptcy Code and seek a court-arranged reorganization. And unlike sovereign nations, Puerto Rico cannot seek emergency assistance from the International Monetary Fund.2

Puerto Rico’s government has begun defaulting on $72 billion in debt and has warned that it will run out of cash this summer. The island faces $2 billion in debt service payments on July 1. “Come July 1, if nothing is done, Puerto Rico will technically be bankrupt,” said Anne Krueger, a former IMF economist who led a detailed review of the island’s economy. “Assets will be tied up in courts. It is very likely that essential services will have to be suspended.”

The House bill passed 297 to 127. The bill passed with the support of 139 Republicans and 158 Democrats. It was opposed by 103 Republicans and 24 Democrats.

The bill had the bi-partisan support of President Barack Obama, House Speaker Paul Ryan, and Minority Leader Nancy Pelosi.3

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Puerto Rico Defaults On May 1, 2016 Payment

The Commonwealth of Puerto Rico defaulted on most of its $422 million May 1, 2016 debt service payment on Monday owed by the Government Development Bank which acts as Puerto Rico’s fiscal agent.

Puerto Rico did pay $23 million representing the interest due. However, the remaining $399 million that was not paid represented the principal. Continue Reading

Update On Argentina’s Efforts To Pay Holdout Bondholders

On March 31, 2016, the Senate of Argentina’s Congress approved measures that would allow the government to pay the six largest holdout bondholders. The lower House had approved the measures earlier in March.

This was the last hurdle that Argentina’s new President, Mauricio Macri, had to clear inside Argentina in regard to making the payment.1 Continue Reading

Puerto Rico Presents Its Debt Crisis Case To The Supreme Court

As previously reported, Puerto Rico’s Governor Alejandro Garcia Padilla declared in June 2015 that the island’s $72 billion in debt was “not payable.”

The Commonwealth of Puerto Rico has argued that it has been wrongly locked out of the bankruptcy courts, the only place it can reasonably expect to restructure its debt.1

Several financial creditors wanted to keep restructuring talks out of court. Continue Reading

Argentina Reaches Settlement With The Four Remaining Largest Holdout Bondholders

As previously reported on February 19, 2016, two of the six largest holdout bondholders had agreed to accept Argentina’s settlement offer.1

The Republic of Argentina announced on February 29, 2016 that it had reached agreement of a payment settlement with the four remaining largest holdout bondholders. The deal is to pay $4.65 billion to settle the claims with the largest holdouts.2 Continue Reading

Argentina Proposes Payment Offer to Holdout Bondholders

Argentina resumed talks with the holdout bondholders on February 1, 2016 after securing a $5 billion loan from Wall Street banks that will strengthen its hand in negotiations to end the 15 year long and bitter legal dispute.1

On February 5, 2016, the Republic of Argentina made an offer to U.S. holders of its defaulted government debt by providing to pay about 72.5% of what holdout creditors in U.S. court have claimed they are owed. Argentina officials said the payment offer would come to about $6.5 billion. Continue Reading

New Argentina President Attempts to Resolve Litigation Regarding Debt Defaults

On October 25, 2015, the Republic of Argentina held its presidential election. The then current President, Cristina Fernandez de Kirchner constitutionally was barred from seeking a third consecutive term. In 2007, she had succeeded her husband, Nestor Kirchner, who had decided not to run, as president. He had been president since 2003.

The presidential contenders in the 2015 election were (1) Daniel Scioli of the ruling Victory Front coalition/Peronist party and endorsed by Cristina Kirchner, (2) Mauricio Macri, City Mayor of Buenos Aires, founder of the center-right Republican Proposal party, and leader of the opposition alliance Cambiemos, Spanish for “Let’s change,” and (3) Sergio Massa, Renewal Front candidate and leader of a coalition that unites dissident Peronists. Continue Reading

Escrow Agreement Provisions

The significant growth in the number and type of innovative financings has also increased the need for an escrow agent in many transactions.

Essentially, an escrow agent is a disinterested party that holds something of value for two or more other parties until a specified time has passed or until a specified event has occurred. The simplistic nature of an escrow appointment should not overshadow the fact that quite often the parties to the arrangement are at times in disagreement or lack faith and trust in each other. Continue Reading

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