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A bill to give Puerto Rico's ailing public utilities a way to restructure debt under the U.S. Bankruptcy Code drew skepticism from congressional Republicans but support from Democrats, who said that it would relieve the island's problems, Reuters reported yesterday. The House Judiciary Subcommittee on Regulatory Reform, Commercial and Antitrust Law yesterday held a hearing on the bill, proposed by Puerto Rico's non-voting congressional delegate, Democrat Pedro Pierluisi. The legislation would allow the territory's government-owned corporations to file under chapter 9 of the bankruptcy code. Subcommittee Chairman Tom Marino of Pennsylvania and Representative Darrel Issa of California, both Republicans, said that they were undecided on whether to support the bill in its current form. "Is it wise to provide this (chapter 9), even prospectively, without a real plan presented from the Commonwealth of Puerto Rico going forward for how they're going to work their way out of an ongoing and systemic pattern?" Issa said at the hearing. But Democrats said the legislation would help Puerto Rico's utilities when they run out of options. "This legislation is a wise use of the law — a step we can take now to avoid a bailout or a financial crisis later," said Illinois Democratic Representative Luis Gutierrez, who sits on the Judiciary Committee itself but not the subcommittee. Read more.

Additionally, a Washington Post editorial today noted that there are two main objections to the bill: that it amounts to changing the rules under which investors agreed to buy Puerto Rico’s debt and that the island could scrape together the cash to pay its creditors if it were to reform the entities in question, especially the financially inefficient electric utility, which is owed hundreds of millions of dollars by the island government. Both points are valid, to an extent — just as it’s valid to point out that investors in Puerto Rican debt heretofore enjoyed an especially good deal because it paid tax-free interest. Puerto Rico must indeed reform its public sector, according to the editorial, but the structural crisis affecting its economy is such that even dramatic new efficiencies probably wouldn’t produce enough growth to pay its debts as currently structured. The editorial argues that, for the sake of its economic future, America’s best friend in the Caribbean needs the power to negotiate a new, more sustainable deal with its creditors, and Congress should grant it. Read the editorial.

Republican lawmakers in the U.S. House of Representatives and Senate are discussing a joint effort to repeal a key section of the landmark Wall Street reform law, seeking to limit the U.S. government's role in supporting financial institutions on the brink of collapse, Reuters reported yesterday. Efforts by Republicans to revamp the 2010 Dodd-Frank Act, including its handling of failing banks, went nowhere in the past because the Democrat-controlled Senate defended the law. A new push on the bank resolution issue would still face major hurdles, including a likely veto from President Barack Obama, who has vowed to protect the law, and opposition from the banking sector itself. But this year, Republicans control both houses of Congress, and they hope to reduce the law's reach and rein in the Federal Reserve and other powerful regulators. Some lawmakers who have pushed for changes in how failed banks are administered, including Senator Pat Toomey of Pennsylvania, have bigger leadership roles. "We've been meeting every few weeks on the hope that we can produce one, comprehensive product," a Republican aide to the Senate Banking Committee told Reuters, adding that talks involved staff members in the House and Senate. The segment of Dodd-Frank at issue is called Title II or the orderly liquidation authority. It allows U.S. regulators to intervene to manage the collapse of a systemically risky bank, insurer or other major financial company to avoid a messy failure that spreads risk to the broader financial system. Republicans say this process would enable bailouts. They are aiming to repeal that provision, limit the short-term loans the U.S. Federal Reserve offers to firms desperate for cash, and make bankruptcy the only option for failing banks.

In addressing the Office of the U.S. Trustee’s new attorney fee guidelines, the ABI Chapter 11 Reform Commission’s report recently proposed constructive changes regarding the retention and compensation of professionals, according to a commentary yesterday by Ralph Tuliano on the Wall Street Journal’s Bankruptcy Beat Blog. These recommendations are, in part, designed to incentivize professionals to provide services in a cost-effective manner, according to Tuliano. Additionally, the Commission suggested the consideration of the value, relevance and viability of alternative fee arrangements, fixed fee arrangements and task-based fees in the compensation of professionals. http://www.wsj.com/articles/BL-BANKB-20595

To read the Final Report of the ABI Chapter 11 Reform Commission, please visit http://commission.abi.org.

For additional perspectives on professional fees, be sure to visit the latest series on the Wall Street Journal’s Bankruptcy Beat blog: http://blogs.wsj.com/bankruptcy/category/the-examiners/

People (and institutions) like rules that give them a competitive edge, and you need only to look at the recent headlines and the media coverage of “Deflate Gate” to understand this basic concept, according to a commentary by Prof. Michelle Harner in Credit Slips today. Reportedly, Tom Brady, Peyton Manning, and other quarterbacks lobbied the NFL to allow each team to supply its own set of footballs for use by that team’s quarterback during games. How does any of this relate to chapter 11 reform, Prof Harner asks? To answer that question, ask yourself a different one: Do you like how chapter 11 currently resolves your client’s key issues in most instances? If you answered “yes,” you likely see no reason for reform. If you answered “no,” you likely would favor reform, but perhaps only those aspects of reform beneficial to your client. Therein lies the ever-present dilemma for policymakers: implementing the best policy for the overall federal bankruptcy system in the midst of so much noise.