United States: Legislative Update - July/August 2016

Last Updated: August 11 2016
Article by Mark G. Douglas

On June 30, 2016, President Obama gave his imprimatur to the Puerto Rico Oversight, Management, and Economic Stability Act, Pub. L. No. 114-187 (2016) ("PROMESA") (H.R. 5278 and S. 2328). The bipartisan legislation was approved by both Houses of Congress in a flurry of legislative dealmaking that preceded a July 1, 2016, deadline for Puerto Rico to make $2 billion in bond payments. Despite the passage of PROMESA, Puerto Rico defaulted on its constitutionally guaranteed debt for the first time on July 1.

The enactment of PROMESA followed a June 13, 2016, ruling by the U.S. Supreme Court that upheld lower court rulings declaring unconstitutional a 2014 law, portions of which mirrored chapter 9 of the Bankruptcy Code, which law 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). See Commonwealth v. Franklin Cal. Tax-Free Tr., 2016 BL 187308 (U.S. June 13, 2016) (discussed elsewhere in this edition of the Business Restructuring Review).

Among other things, PROMESA provides for the establishment of an Oversight Board entrusted with determining the adequacy of budgets and fiscal plans for the instrumentalities of Puerto Rico and other covered territories. It also provides a mechanism for the implementation of voluntary out-of-court restructuring agreements between an instrumentality and its bondholders as well as bond debt adjustment plans (consensual and nonconsensual) in a case commenced in federal district court.

Set forth below is a brief summary of PROMESA's most important provisions.

Effective Date June 30, 2016
Covered Territories Puerto Rico, Guam, American Samoa, the Commonwealth of the Northern Mariana Islands, and the United States Virgin Islands.
Oversight Board An oversight board consisting of seven members appointed by the president for a three-year term (subject to renewal).
Powers of the Oversight Board The Oversight Board has the power to, among other things:
  • Require the governor of a covered territory, including Puerto Rico ("PR," for ease of reference), to submit budgets and monthly reports regarding the commonwealth's instrumentalities;
  • Approve fiscal plans that provide a method to achieve fiscal responsibility and access to capital markets;
  • Ensure that the assets of an instrumentality are not loaned to, transferred to, or otherwise used for the benefit of PR or its instrumentalities unless permitted by the Constitution or agreed to in a certified voluntary restructuring agreement or an approved adjustment plan;
  • Approve annual budgets, failing which the board shall have the power to make appropriate reductions in nondebt expenditures to ensure that actual quarterly revenues and expenditures are in compliance, institute automatic hiring freezes, and prohibit PR from entering into any contract or engaging in any financial or other transactions without board approval;
  • Disclose information regarding the identity of creditors and their claims;
  • Certify a voluntary restructuring agreement between an instrumentality and bondholders holding a majority in principal amount of its bonds, provided the Oversight Committee determines that the agreement provides for a sustainable level of debt for the instrumentality and is in conformance with a certified fiscal plan;
  • Commence a voluntary case under PROMESA on behalf of an eligible instrumentality by filing a petition with the district court;
  • Certify voluntary restructuring agreements between PR and its bondholders;
  • Certify a plan of adjustment between PR and creditors as being consistent with the applicable certified fiscal plan;
  • Exercise the exclusive right to propose or modify debt adjustment plans;
  • Ensure the prompt and efficient payment and administration of taxes through adoption of electronic reporting, payment, and auditing technologies;
  • Approve or deny any proposal by PR or an instrumentality to issue debt or guarantee, exchange, modify, repurchase, redeem, or enter into similar transactions with respect to its debt;
  • Analyze materially underfunded pension liabilities of PR or its instrumentalities; and
  • Approve (with the votes of at least five members) an instrumentality as an eligible debtor for purposes of a debt adjustment plan.
Termination of the Board The Oversight Board shall terminate upon certification that PR has adequate access to short- and long-term markets at reasonable rates, that PR has developed an approved budget for at least four years, and that expenditures did not exceed revenues during that period.
No U.S. Government Guarantee The full faith and credit of the U.S. is not pledged for the payment of any bond, note, or other obligation issued by PR or its instrumentalities after the enactment of PROMESA.
Preemption PROMESA preempts any PR law purporting to implement a binding composition of indebtedness or moratorium without the consent of creditors.
Jurisdiction The federal district courts shall have exclusive jurisdiction over all cases brought under PROMESA.
Bankruptcy Code Provisions Applicable in PROMESA Cases Sections 101 (with certain exceptions), 102, 104, 105, 106, 107, 108, 112, 333, 344, 347(b), 349, 350(b), 351, 361, 362, 364(c), 364(d), 364(e), 364(f), 365, 366, 501, 502, 503, 504, 506, 507(a)(2), 509, 510, 524(a)(1), 524(a)(2), 544, 545, 546, 547, 548, 549(a), 549(c), 549(d), 550, 551, 552, 553, 555, 556, 557, 559, 560, 561, 562, 902 (with certain exceptions), 922, 923, 924, 925, 926, 927, 928, 942, 944, 945, 946, 1102, 1103, 1109, 1111(b), 1122, 1123(a)(1), 1123(a)(2), 1123(a)(3), 1123(a)(4), 1123(a)(5), 1123(b), 1123(d), 1124, 1125, 1126(a), 1126(b), 1126(c), 1126(e), 1126(f), 1126(g), 1127(d), 1128, 1129(a)(2), 1129(a)(3), 1129(a)(6), 1129(a)(8), 1129(a)(10), 1129(b)(1), 1129(b)(2)(A), 1129(b)(2)(B), 1142(b), 1143, 1144, 1145, and 1146(a) apply in a PROMESA case, and section 930 shall also apply (governing dismissal of a case), except during the first 120 days after the petition date.
Confirmation of Plan of Adjustment To be confirmable, a plan of adjustment must:
  • Be feasible and in the best interests of creditors, upon consideration of whether available remedies under nonbankruptcy law and the PR Constitution would result in greater recovery for creditors than the recoveries provided under the plan;
  • Be consistent with the approved fiscal plan; and
  • Satisfy the requirements of section 1129(a) of the Bankruptcy Code, unless only a single class of impaired claims has not accepted the plan, which must be fair and equitable and must not discriminate unfairly with respect to the impaired class.
Automatic Stay PROMESA provides that, effective upon enactment, and subject to a police and regulatory powers exception for governmental units, there shall be an automatic stay of all creditor collection efforts against PR and its instrumentalities until the later of February 15, 2017, or six months after the establishment of the Oversight Board. Certain extensions of the duration of the stay are permitted.

Relief from the stay may be granted by the court for "cause."

The stay terminates automatically 45 days after a request for stay relief is made unless the court orders otherwise.

Parties providing goods and services to PR or its instrumentalities must continue to perform under their contracts during the pendency of the stay, provided that PR or the instrumentality is not in default other than as a consequence of its insolvency or financial condition.

If the Oversight Board determines it is feasible, PR shall continue to make interest payments on debt during the pendency of the stay.
Liability of Transferees Transferees of PR or instrumentality property in violation of any applicable law for the benefit of creditors or security agreement shall be liable for the value of the property transferred.
Solicitation of Plan Solicitation of votes on a proposed plan of adjustment must be accompanied by any approved fiscal plan and any other information required under applicable securities laws.
Voting on Plan and Binding Effect A plan of adjustment is accepted by bondholders if the holders of at least two-thirds of the principal amount of bonds in each "pool" of bonds (secured, unsecured, guaranteed, and nonguaranteed bonds generally being separately classified) vote to accept the plan.

Modification of the rights of bondholders under a plan of adjustment shall be binding on all holders of a series of bonds, whether or not they consent, if: (i) eligible voting bondholders in each pool vote to accept the plan by the requisite majority; and (ii) the Oversight Board certifies that (a) the voting requirements have been satisfied, (b) the proposed modification provides for, among other things, a sustainable level of debt, and (c) any dissenting secured bondholder will retain the liens securing its bonds or will receive on account of its bond claim, through deferred cash payments, substitute collateral or otherwise value equivalent to the lesser of the face amount of its claim or the value of its collateral.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Mark G. Douglas
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions