San Juan Puerto Rico (Shutterstock)
In a move that could dwarf the massive municipal bankruptcy of Detroit in 2013, the government of Puerto Rico indicated Wednesday that it would begin a bankruptcy-type process to restructure some $73 billion in debt.
Puerto Rico, which is barred under federal law from seeking Chapter 9 protection in a U.S. bankruptcy court, instead filed a petition for relief with a U.S. district court in San Juan. Proskauer Rose restructuring partners Martin Bienenstock, Scott Rutsky and Philip Abelson in New York are working with Hermann Bauer of San Juan’s O’Neill & Borges in advising The Financial Oversight and Management Board for Puerto Rico, according to the court filing.
Bienenstock (pictured right), who led a team of lawyers fleeing the soon-to-be-bankrupt Dewey & LeBoeuf for Proskauer five years ago this month, serves as chair of Proskauer’s business solutions, governance, restructuring and bankruptcy practice. He did not respond to a request for comment. The American Lawyer named Bienenstock one of its Dealmakers of the Year in 2015 for his role representing certain Puerto Rican governmental entities on their debt restructuring efforts.
Proskauer’s client is the oversight board, a seven-member, bipartisan team of legal and financial experts— including former U.S. Bankruptcy Judge Arthur Gonzalez—created last year to help Puerto Rico restructure its massive debt load. The board was created by the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA), legislation passed by Congress to help Puerto Rico cope with its debt crisis. After ongoing debt restructuring talks recently collapsed, Puerto Rico was hit earlier this week by a spate of suits from creditors. The oversight board then invoked an in-court restructuring provision under PROMESA known as Title III that resulted in Wednesday’s court filing in San Juan.
The commonwealth’s liabilities include roughly $18 billion owed by the island’s central government, billions more by various governmental agencies—such as Puerto Rico’s power and water utilities—and sizeable public pension obligations. President Donald Trump has vowed that no federal money will be used to bailout out Puerto Rico, which in January hired Trump’s former campaign manager Corey Lewandowski as a lobbyist on four-month contract worth $125,000. Puerto Rico’s fiscal issues have been exacerbated by a precipitous population decline over the past decade, a time in which tourism has also taken a hit.
At the same time, Puerto Rico’s restructuring woes have resulted in an attorney fee bonanza for several Am Law 100 firms. The New York Post reported last year that Cleary Gottlieb Steen & Hamilton, Proskauer and Kirkland & Ellis had legal services contracts with Puerto Rico maxing out at $37 million, $6 million and $4.6 million, respectively. Bloomberg reported last summer on Cleary Gottlieb having another $2 million contract with the commonwealth extended through June 30, 2017.
In January, Reuters reported that a new government in Puerto Rico led by Gov. Ricky Rosselló—sworn in on Jan. 2 to replace the outgoing Gov. Alejandro Garcia Padilla, a former attorney general for Puerto Rico—had hired a Dentons restructuring team led by partner Sam Alberts to replace Cleary Gottlieb as its restructuring counsel. (Dentons and Alberts advised an official committee of retirees in Detroit’s Chapter 9 case.)
Paul, Weiss, Rifkind, Wharton & Garrison partner Andrew Rosenberg was hired in 2015 to represent Puerto Rico’s general obligation bondholders, according to Bloomberg. Quinn Emanuel Urquhart & Sullivan partner Susheel Kirpalani has been advising a group of other sales tax bondholders, according to a 2015 report by sibling publication The Litigation Daily, which noted that Puerto Rico’s bondholder battles have also yielded roles for Davis Polk & Wardwell, Gibson, Dunn & Crutcher, Kramer Levin Naftalis & Frankel and the newly renamed Kasowitz Benson Torres, with Morrison & Foerster and Venable being hired by groups of financial institutions and hedge funds, respectively.
Cadwalader, Wickersham & Taft filed a complaint Wednesday against the Commonwealth of Puerto Rico and its oversight board on behalf of municipal bond insurer Assured Guaranty Ltd. Prime Clerk LLC, a New York-based bankruptcy claims administrator started in 2013 by former Weil, Gotshal & Manges bankruptcy partner Shai Waisman, is managing the docket for Puerto Rico’s restructuring case.
Copyright The American Lawyer. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.