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A federal judge said San Bernardino’s leaders need to explain their plan to have the southern California city exit bankruptcy protection by repaying a fraction of its debts instead of raising taxes, the Wall Street Journal reported today. Bankruptcy Judge Meredith Jury on Wednesday rejected — for a second time — the city’s proposal to cut debts, saying that it didn’t contain enough information for bondholders, retirees who face health-care cuts and others to vote on the proposal. She agreed to consider another draft of the plan at a March 9 hearing in U.S. Bankruptcy Court in Riverside, Calif.

As Puerto Rico runs out of cash and approaches a Jan. 1 due date for about $1 billion in debt payments, investors increasingly are uneasy about the fate of bonds sold with a near guarantee, the Wall Street Journal reported today. The bonds, backed by sales taxes and known by the Spanish acronym Cofina, were issued starting a decade ago to plug budget gaps and repay other lenders. The debt at the time was considered the island’s safest offering, and Cofina bonds soon became the biggest chunk of Puerto Rico’s debt outstanding. Now, as the struggling commonwealth redirects money intended for some debt to pay bonds with better legal protections, some analysts are predicting it will soon target Cofina bonds to avoid defaulting on its constitutionally protected general-obligation debt. Such a move would spark a showdown over its two most-sacrosanct obligations. Read more. (Subscription required.) 

A New York Times editorial yesterday advocated for Congress to help Puerto Rico, which is home to 3.5 million American citizens, by giving it the ability to restructure its debts in an orderly way. On Jan. 4, the island’s government has to pay creditors nearly $1 billion, money it does not have. It will almost surely default on some of that debt, which could result in lawsuits by investors. The commonwealth is already behind in paying vendors about $400 million and owes residents $300 million in tax refunds. Officials have raised taxes and slashed spending, but that has only depressed the weak economy and encouraged thousands of people to move to the mainland. What needs to happen is clear, according to the editorial: Congress should change the law that excludes Puerto Rico from bankruptcy protection. The island’s government and its creditors should be able to renegotiate the debt in court. And federal lawmakers should appoint an oversight board to make sure the commonwealth’s government adopts sound policies. Read the full editorial. 

The December episode of "Eye on Bankruptcy" last week was devoted to Puerto Rico, featuring remarks by Rep. Pedro Pierluisi, Judge Steven Rhodes and an analysis of the coming Supreme Court argument on whether the Recovery Act was pre-empted by the Bankruptcy Code. 

Join experts in San Juan to discuss Puerto Rico's economic distress and other important cross-border insolvency topics at ABI's Caribbean Insolvency Symposium, Feb. 4-6, 2016. Click here to register! 

For more news and analysis of Puerto Rico's debt crisis, be sure to visit ABI's "Puerto Rico in Distress" webpage. 

The bankrupt California city of San Bernardino won praise from bondholders yesterday for its handling earlier this month of the massacre that killed 14 people, but at the first significant court hearing since the attack, creditors questioned a plan to increase spending to bolster the police force, Reuters reported yesterday. Bankruptcy Judge Meredith Jury also praised the city for its handling of the shooting by a married couple. Creditors were concerned with their treatment in San Bernardino's proposed plan to exit chapter 9 protection. Bondholders questioned the city's plan to spend $159 million over 20 years to increase police staffing, improve technology and replace aging vehicles, and another $24 million set aside as a bankruptcy reserve. Representing EEPK, the Luxembourg-based bank and the city's second-largest creditor, Vince Marriott said the plan was "completely opaque," and the city needed "to explain in more detail what it is, what it is for, and how it is calculated." San Bernardino has proposed to pay a penny on the dollar on nearly $50 million in pension obligation bonds held by EEPK.

Puerto Rico’s beleaguered electric utility announced new progress late Wednesday in its continuing efforts to avoid a default on as much as one-eighth of the island’s total debt of $72 billion, the New York Times reported today. Officials said that two bond insurers had agreed to take part in a five-year restructuring plan for the Puerto Rico Electric Power Authority, an islandwide monopoly. The insurers’ involvement signaled that PREPA had found a way to satisfy its bondholders, who expect to be paid about $177 million on Jan. 1, without having to part with that much cash itself. PREPA is one of 13 branches of the Puerto Rican government scheduled to make bond payments on Jan. 1, for a total of around $902 million. Read more. 

The December episode of "Eye on Bankruptcy" last week was devoted to Puerto Rico, featuring remarks by Rep. Pedro Pierluisi, Judge Steven Rhodes and an analysis of the coming Supreme Court argument on whether the Recovery Act was pre-empted by the Bankruptcy Code. 

Join experts in San Juan to discuss Puerto Rico's economic distress and other important cross-border insolvency topics at ABI's Caribbean Insolvency Symposium, Feb. 4-6, 2016. Click here to register! 

For more news and analysis of Puerto Rico's debt crisis, be sure to visit ABI's "Puerto Rico in Distress" webpage. 

Puerto Rico's governor Alejandro Garcia Padilla said yesterday that it is "very, very unlikely" there will be no default on debt due Jan. 1 and that the U.S. territory was evaluating which bonds are to be paid, Reuters reported yesterday. "Making a total payment will be (very unlikely)," Garcia Padilla said. "If a partial payment is to be done, which bonds should be paid? It is an evaluation that we are doing." Puerto Rico first defaulted on its debt in August and has warned that more defaults are coming. It has an upcoming debt payment of around $1 billion due Jan. 1. "It is very, very unlikely there is no default," Garcia Padilla said. Puerto Rico officials have given clear warnings of defaults. Garcia Padilla said earlier in December that the island "will default in January or in May," and Melba Acosta, president of the island's Government Development Bank was quoted in local media last Friday saying that the island is expected to default on a Jan. 1 payment on its Infrastructure Finance Authority (PRIFA) bonds. Read more. 

The December episode of "Eye on Bankruptcy" last week was devoted to Puerto Rico, featuring remarks by Rep. Pedro Pierluisi, Judge Steven Rhodes and an analysis of the coming Supreme Court argument on whether the Recovery Act was pre-empted by the Bankruptcy Code. 

Join experts in San Juan to discuss Puerto Rico's economic distress and other important cross-border insolvency topics at ABI's Caribbean Insolvency Symposium, Feb. 4-6, 2016. Click here to register! 

For more news and analysis of Puerto Rico's debt crisis, be sure to visit ABI's "Puerto Rico in Distress" webpage. 

The former director of the Newark Watershed Conservation and Development Corp., pleaded guilty yesterday to soliciting nearly $1 million in bribes from businesses in return for overinflated and no-work contracts, NJ.com reported yesterday. Linda Watkins-Brashear, who presided over the non-profit agency as it slid into bankruptcy and dissolution amid charges of corruption and mismanagement, pleaded guilty to conspiracy and filing a false income tax return in Newark federal court before U.S. District Judge Jose Linares. Watkins-Brashear, who led the agency that kept the tap water flowing for half a million northern New Jersey water customers from 2007-2013, faces up to 23 years in jail and $350,000 in fines in pleading guilty. She also must forfeit the $999,000 that was kicked back to her. 

Puerto Rico Governor Alejandro Garcia Padilla will pay Christmas bonuses due to public employees as the commonwealth contemplates defaulting on bond payments at the start of the year, Bloomberg News reported yesterday. The governor, who won’t seek re-election when his term expires in January 2017, will begin paying about $120 million that workers were owed as of Dec. 20, according to an announcement posted Sunday on the administration’s website. The administration had said it wasn’t sure whether it had enough money to make the bonus payments, which economists say have a multiplier effect on the island’s struggling economy. Garcia Padilla also faces a $957 million interest payment on commonwealth and agency debt due Jan. 1, including $357 million on general-obligations. Puerto Rico’s constitution requires that officials must first pay general-obligation debt before other bills. Read more. 

The December episode of "Eye on Bankruptcy" on Thursday was devoted to Puerto Rico, featuring remarks by Rep. Pedro Pierluisi, Judge Steven Rhodes and an analysis of the coming Supreme Court argument on whether the Recovery Act was pre-empted by the Bankruptcy Code. 

Join experts in San Juan to discuss Puerto Rico's economic distress and other important cross-border insolvency topics at ABI's Caribbean Insolvency Symposium, Feb. 4-6, 2016. Click here to register! 

For more news and analysis of Puerto Rico's debt crisis, be sure to visit ABI's "Puerto Rico in Distress" webpage. 

The battle over whether Puerto Rico should be granted bankruptcy protections centers on putting tens of billions of dollars at risk from investors around the country. But it is also testing the power of an ascendant class of ultrarich Americans to steer the fate of a territory that is home to more than three million fellow citizens, according to a New York Times feature on Saturday. To block proposals that would put their investments at risk, a coalition of hedge funds and financial firms has hired dozens of lobbyists, forged alliances with Tea Party activists and recruited so-called AstroTurf groups on the island to make their case. This approach — aggressive legal maneuvering, lobbying and the deployment of prodigious wealth — has proved successful overseas, in countries like Argentina and Greece, yielding billions in profit amid economic collapse. Read more. 

With a potential huge default on bonds looming and a new bankruptcy law for Puerto Rico to be weighed by Congress in the new year, bondholders have agreed to keep trying to reach a deal to restructure as much as an eighth of the island’s $72 billion debt, the New York Times also reported on Saturday. The deal would involve debt issued in the form of revenue bonds by Puerto Rico’s big public electric utility, known as PREPA. An agreement to pursue the restructuring plan was set to expire on Thursday, but the parties renewed it that evening, as they have done a number of times previously. PREPA is one of 13 governmental entities in Puerto Rico that have bond payments due on Jan. 1. The continuing talks make it likelier that PREPA, at least, will pass that date uneventfully, though it does not change anything for the other 12. Nor does it lower a series of dauntingly high hurdles that still stand in the way of closing the deal. Read more. 

In related news, Senate Democrats want to temporarily shield Puerto Rico from debt lawsuits as lawmakers try to reach an agreement on how to help the debt-ridden territory, The Hill reported today. Democratic Sens. Elizabeth Warren (Mass.), Charles Schumer (N.Y.) and Richard Blumenthal (Conn.), as well Minority Leader Harry Reid (D-Nev.), introduced legislation on Friday that would place a stay on creditor lawsuits through March. The senators argue the extra time would let lawmakers pass "comprehensive relief" legislation, which Democrats argue should allow Puerto Rico to have access to bankruptcy courts, allowing it to restructure its debt. Read more. 

Rep. Pedro Pierluisi recently spoke for an exclusive ABI video outlining why congressional action is needed to help reverse Puerto Rico's debt crisis. Watch the video here. 

The December episode of "Eye on Bankruptcy" on Thursday was devoted to Puerto Rico, featuring remarks by Rep. Pedro Pierluisi, Judge Steven Rhodes and an analysis of the coming Supreme Court argument on whether the Recovery Act was pre-empted by the Bankruptcy Code. 

Join experts in San Juan to discuss Puerto Rico's economic distress and other important cross-border insolvency topics at ABI's Caribbean Insolvency Symposium, Feb. 4-6, 2016. Click here to register! 

For more news and analysis of Puerto Rico's debt crisis, be sure to visit ABI's "Puerto Rico in Distress" webpage. 

U.S. Treasury Secretary Jack Lew said yesterday that it is "essential" that Puerto Rico be given access to a mechanism to restructure its debt, calling on Congress to "act quickly" to address the island's $70 billion debt crisis, Reuters reported. A solution for Puerto Rico "must include both independent oversight" of the island's finances "and an orderly process to restructure the commonwealth's debt," Lew said. The Treasury had previously voiced support for passing laws to allow Puerto Rico to file bankruptcy, but no such language made it into Congress' omnibus spending bill, unveiled this week. House Speaker Paul Ryan said on Wednesday he had instructed committees to work with Puerto Rico's government to come up with a solution to the island's financial woes, calling for a plan to be crafted by the end of March. Read more. 

Rep. Pedro Pierluisi recently spoke for an exclusive ABI video outlining why congressional action is needed to help reverse Puerto Rico's debt crisis. Watch the video here. 

The December episode of "Eye on Bankruptcy" today was devoted to Puerto Rico, featuring remarks by Rep. Pedro Pierluisi, Judge Steven Rhodes and an analysis of the coming Supreme Court argument on whether the Recovery Act was pre-empted by the Bankruptcy Code. (Link to program available next week at http://www.eyeonbankruptcy.com/.)

Join experts in San Juan to discuss Puerto Rico's economic distress and other important cross-border insolvency topics at ABI's Caribbean Insolvency Symposium, Feb. 4-6, 2016. Click here to register! 

For more news and analysis of Puerto Rico's debt crisis, be sure to visit ABI's "Puerto Rico in Distress" webpage.