The United States Court of Appeals for the Third Circuit, applying New York law, recently reversed two lower court rulings that had denied holders of EFIH first and second lien notes approximately $431 million in optional redemption premiums. The Third Circuit determined that the make whole provisions contained in the relevant first and second lien indentures were enforceable by their terms in this post-bankruptcy acceleration context. Read the decision here.
Litigation involving two recent out-of-court restructurings have focused on interpreting broadly bondholder protections under the Trust Indenture Act of 1939, as amended.
The two cases in the United States District Court for the Southern District of New York are:
- Marblegate Asset Management v. Education Management Corp.
- MeehanCombs Global Opportunity Funds, LP et al. v. Caesars Entertainment Corp. et al.
The members of the financial oversight board to supervise Puerto Rico’s fiscal affairs were announced by the White House on August 31, 2016. The seven members are experts in finance and law and were chosen from lists provided President Barack Obama by the party leaders of both houses of Congress. The members of the oversight board include four Republicans and three Democrats. Four members are Puerto Ricans, three more than required under the new Puerto Rico Oversight, Management and Economic Stability Act (PROMESA).
As previously reported, Puerto Rico needed a special restructuring law because all branches of its government are specifically prohibited from seeking relief through bankruptcy. The island has $72 billion in outstanding debt. PROMESA extends bankruptcy like protections to Puerto Rico under the purview of a federal control oversight board and halted new debt related litigation against the island until February 2017.1 Continue Reading
On August 3, the Debtors in the Caesars chapter 11 proceedings pending in the Northern District of Illinois filed a motion seeking payment of the fees and expenses of an indenture trustee for certain senior unsecured notes during the pendency of the case and prior to plan confirmation. The Debtors assert that the proposed payment is a sound exercise of their business judgment that is in the best interests of the Debtors’ estates within the meaning of Section 363(b)(1) of the Bankruptcy Code.
The United States Trustee objected, contending that the relief requested violates Section 503(b) of the Bankruptcy Code, and requested additional briefing and an evidentiary hearing to resolve certain factual issues related to the request. The Official Committee of Second Priority Noteholders also objected, and certain other indenture trustees serving in the case filed responsive papers (WSFS, DTC, BOKF) seeking similar treatment in the event that the motion is granted. The motion remains pending before the Court.
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
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.
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
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
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
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