On March 15, 2022, the Financial Oversight and Management Board for Puerto Rico announced that the Plan of Adjustment for the Commonwealth of Puerto Rico became effecfive, more than four years aher Puerto Rico commenced restructuring proceedings under Title III of the Puerto Rico Oversight, Management and Economic Stability Act (“PROMESA”). PROMESA is a bespoke piece of federal legislafion enacted in 2016 to address Puerto Rico’s debt crisis, and incorporates most of chapter 9 of the Bankruptcy Code.

On October 29, 2021, Judge Laura Taylor Swain, the presiding judge in the Puerto Rico bankruptcy case, ruled that approximately $2 billion in intragovernmental loan claims were subordinated to bonds issued by the Puerto Rico Highway and Transportation Authority (“HTA”) pursuant to an assignment and security agreement.¹ The Court’s opinion

Section 365 of the Bankruptcy Code creates a framework through which a debtor can elect to either assume or reject an executory contract. Because the Bankruptcy Code does not define “executory,” courts utilize various tests to determine if a debtor can assume a contract—and thus be obligated to perform—or reject a contract—and thus the contract is deemed breached immediately prior to the bankruptcy filing date. The Countryman test is overwhelmingly the most commonly applied test to determine a contract’s executory nature.

Argentina—The long-running dispute over the payment of Argentina’s sovereign debt has been particularly active in recent weeks and months.

Events Leading Up to Argentina's Default

Greece

Since PROMESA was enacted in 2016 to pave the way for a comprehensive restructuring of Puerto Rico’s mounting municipal debt obligations, the U.S. District Court for the District of Puerto Rico (District Court) has become a haven for litigious groups of creditors and other constituencies. Undoubtedly frustrated with the progress and trajectory of the cases of the commonwealth and its subsidiaries, these groups have mounted a number of complex legal attacks to the efficacy and validity of PROMESA. However, the debtors recently secured a significant win in Fin. Oversight & Mgmt. Bd.

Marex Financial Limited v. Carlos Sevilleja Garcia [2017] EWHC 918 (Comm)

This recent decision on a jurisdictional challenge has provided greater clarity and potentially created a tortious cause of action where a debtor dissipates assets prior to judgment and subsequent freezing order.

Background

Late on January 24, 2018, the government of Puerto Rico released a revised fiscal plan under which the commonwealth would pay nothing in debt service over the next five years and would only be able to support $2.5 billion to $14 billion of debt in the long term, a fraction of its current level. The plan suggests that holders of its bonds might receive as little as five cents on the dollar.

On March 7, Fannie Mae, in Lender Letter LL-2018-01, and Freddie Mac, in Guide Bulletin 2018-04, extended the suspension of foreclosure sales through May 31 of mortgaged properties in FEMA-declared disaster areas in Puerto Rico and the U.S. Virgin Islands due to Hurricanes Irma and Maria.

On May 16, the Federal Housing Administration (FHA) released Mortgagee Letter ML 2018-03 (ML 2018-03), which extends the 180-day foreclosure moratorium on FHA-insured properties in Puerto Rico & the U.S. Virgin Islands affected by Hurricane Maria for an additional 90 days. As previously covered by InfoBytes, in March, FHA extended the moratorium an additional 60 days to May 18.