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.
As we reported last year, on August 10, 2017, Judge Swain entered an order establishing procedures to govern resolution of the Commonwealth-COFINA dispute (the “Resolution Stipulation”).
Having practiced in Puerto Rico for nearly a decade, including being involved heavily in the ongoing Title III PROMESA proceedings, the recent ruling handed down by the First Circuit could prove to be the most impactful for the Island’s long term restructuring prospects and its access to the Bond markets. The controversial ruling, which pertains to the treatment of municipal revenue debt, has left investors with questions about the value and significance of a revenue pledge in a municipal bankruptcy. This blog provides some background and potential ramifications.
When we last checked in on the Puerto Rico restructuring case, we reported on the February 15 decision of the First Circuit Court of Appeals that the members of the Financial Oversight and Management Board were appointed in contravention of the Appointments Clause of the U.S. Constitution because they were never confirmed by the U.S. Senate.
On Aug. 8, 2018, the U.S. Court of Appeals for the First Circuit upheld the right of Kramer Levin’s bondholder clients to seek a receiver for the Puerto Rico Electric Power Authority (PREPA) — the first appellate court in the history of municipal bankruptcy to do so. The First Circuit reversed U.S. District Judge Laura Taylor Swain, who presides over all proceedings under Title III of the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA). PREPA bondholders alleged that PREPA’s mismanagement had depreciated revenues pledged to them as collateral.
On June 13, 2016, the U.S. Supreme Court upheld lower court rulings declaring unconstitutional a 2014 Puerto Rico law, portions of which mirrored chapter 9 of the Bankruptcy Code, that would have allowed the commonwealth’s public instrumentalities to restructure a significant portion of Puerto Rico’s bond debt (widely reported to be as much as $72 billion). In Commonwealth v. Franklin Cal. Tax-Free Tr., 2016 BL 187308 (U.S.
On June 30, 2016, the United States Senate passed the “Puerto Rico Oversight, Management and Economic Stability Act” (“PROMESA”) and it was quickly signed into law by President Obama.[1] PROMESA enables the Commonwealth of Puerto Rico and its public corporations and other instrumentalities in financial distress to restructure their debt.
When we last discussed the Commonwealth of Puerto Rico’s efforts to restructure some $72 billion in municipal debt, a Federal District Court Judge had found the Commonwealth’s 2014 municipal debt-restructuring law, the “Recovery Act,” to be pre-empted by the federal Bankruptcy Code, unconstitutional and therefore void.
On May 3, 2017, the Financial Oversight and Management Board for Puerto Rico (the “Oversight Board”), acting on behalf of the cash-strapped Commonwealth of Puerto Rico (the “Commonwealth”), filed for bankruptcy protection in the District Court for the District of Puerto Rico. The Commonwealth’s Title III Petition for Covered Territory or Covered Instrumentality (the “Petition”) was filed in accordance with Title III of the Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”), codified at 48 U.S.C. § 2161, et seq.