News & Events

DEBTWIRE Publishes Interview with Sonia Colón, Esq.

Sonia Colón, Esq., Chair of Ferraiuoli’s Bankruptcy & Creditor’s Practice Group, was interviewed by Debtwire, a global leader in real-time intelligence and analysis on distressed debt, leveraged finance and asset-backed markets. The interview, along with input from various other leaders in bankruptcy including the executive director of the American Bankruptcy Institute, Sam Gerdano, involved the re-introduction of the “Puerto Rico Chapter 9 Uniformity Act of 2015” in the U.S. House of Representatives. The Act was recently re-introduced in the U.S. Congress by Puerto Rico’s member in the U.S. House of Representatives, the Hon. Pedro Pierluisi. The Act seeks to include Puerto Rico in the federal Bankruptcy Code’s definition of a “state” for purposes of who may be a debtor under Chapter 9.

Debtwire published the article at its Website:
http://municipals.debtwire.com/Common/muni/Intelligence/Details.aspx?sysid=1965615.
Below is a reproduction of the article, as published.

Puerto Rico Resident Commissioner reintroduces Chapter 9 bill, private sector support key for passage

Puerto Rico Resident Commissioner Pedro Pierluisi yesterday reintroduced a bill to extend Chapter 9 bankruptcy to the commonwealth, a measure bankruptcy experts say will likely need private sector support to become law.

The bill would give Puerto Rico’s public entities the same ability as states’ to file for bankruptcy protection. The bankruptcy code currently bars Puerto Rico’s municipalities and other public entities from filing for Chapter 9.

The bill died in committee when it was introduced last session. And even now it has no co- sponsors and must get approval from a Congress that has had difficulty passing a budget.

But the bill has gained traction now that a judge found an alternate route to restructuring the island’s struggling public corporations unconstitutional, said Sonia Colon, a bankruptcy attorney with San Juan-based Ferraiuoli and Sam Gerdano, executive director of the American Bankruptcy Institute.

“The district court opinion is a game changer,” Gerdano said, referring to the court’s decision to strike down the Recovery Act, a local law passed last June similar to Chapter 9. Gerdano said that because of the decision, the landscape is very different than when the bill was introduced last year, when passage had been “very unlikely.”

One sign of movement: the judiciary committee is planning to hold a hearing on the measure in the coming weeks, a judiciary committee staffer confirmed. That indicates that the Republican leadership has at least decided that the change to the bankruptcy code is “at least an issue worth exploring,” said Gerdano.

And Pierluisi and Puerto Rico Governor Alejandro Garcia Padilla, who belong to opposing political parties, no longer appear to be at odds over the Chapter 9 legislation.

Garcia Padilla’s administration last year had supported the Recovery Act rather than an extension of Chapter 9, in part because of the time it would take to change the federal bankruptcy code, as previously reported. But although it is appealing the judge’s ruling, it has also indicated that it would “undertake all efforts to support enactment” of the bill, according to a release from Pierluisi’s office.

Juan E Hernandez, the director of the Puerto Rico Federal Affairs Administration, which represents the Garcia Padilla administration in Washington, also told El Nuevo Dia that he supported the measure.

Whether the bill ultimately passes will depend on the support of the private sector, said Colon.

“The big factor that needs to be determined is what the private sector will do,” said Colon. “It all depends on the private sector.”

And the private sector may be at odds over the measure, said Tim Nixon, a bankruptcy attorney with Godfrey & Kahn. The interest of general obligation bondholders, public corporation bondholders, and insurance companies may diverge when it comes to maintaining the status quo or allowing Chapter 9 restructuring.

“I don’t see a monolith of them agreeing one way or the other,” said Nixon, who thought Congressional passage was “extremely unlikely.”
Daniel Hanson, an analyst at broker-dealer Height Securities LLC, agreed that private sector stakeholders would be unlikely to universally support extending Chapter 9.

“Bondholders are stronger under the status quo than in a Chapter 9 process,” he said, because Puerto Rico is bound by its “very clear and very strong” bond covenants.

Emanuel C Grillo, a bankruptcy attorney at Baker Botts, also said that passage would be difficult given Congressional priorities.

“In the priority scheme of things to discuss, it’s probably way down the totem poll,” he said. “I don’t know that they see this as a crisis under the circumstances. Something’s going to really have to blow [in Puerto Rico’s finances before Congress acts.]”

By: Simone Baribeau and Javier Balmaceda

This document has been prepared for information purposes only and is not intended, and should not be relied upon, as legal advice.

If you have any questions regarding the foregoing, please feel free to contact any of the following attorneys from our Bankruptcy & Creditor’s Rights Practice Group: