On Aug. 8, 2018, the U.S. Court of Appeals for the First Circuit upheld the right of Kramer Levin’s bondholder clients to seek a receiver for the Puerto Rico Electric Power Authority (PREPA) — the first appellate court in the history of municipal bankruptcy to do so. The First Circuit reversed U.S. District Judge Laura Taylor Swain, who presides over all proceedings under Title III of the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA). PREPA bondholders alleged that PREPA’s mismanagement had depreciated revenues pledged to them as collateral. PROMESA Section 305 barred the Title III court from appointing a receiver. Therefore, PREPA bondholders sought relief from the stay to appoint a receiver in another court. However, Judge Swain read Section 305 to preclude bondholders from seeking a receiver in any court and denied relief from the stay. The First Circuit reversed and remanded, holding that bondholders could obtain relief from the stay. In a unanimous decision, Judge William J. Kayatta Jr. directed Judge Swain to consider harms suffered by bondholders in determining whether to grant relief from the stay. PROMESA Title III is an almost exact copy of Chapter 9 of the Bankruptcy Code, which governs municipal bankruptcies nationwide, and Section 305 is an almost exact copy of Bankruptcy Code Section 904. The First Circuit’s decision thus struck a blow for bondholders nationwide by recognizing bondholders’ right to protect their collateral during a municipal bankruptcy case — the first such appellate court decision since municipal bankruptcy laws were first enacted in the 1930s.
Shortly before the First Circuit decision was handed down, Kramer Levin’s bondholder clients inked a preliminary RSA with the oversight board and Puerto Rico, establishing the contours of a consensual restructuring of PREPA’s debt. The RSA provides for the exchange of PREPA’s debt into new securitization debt at a discount, providing PREPA with debt service savings, the people of Puerto Rico with lower and more stable electricity costs, and the bondholders with certainty of repayment. On May 3, 2019, Puerto Rico Gov. Ricardo Rosselló and the Federal Oversight and Management Board for Puerto Rico announced a consensual restructuring for our clients with respect to their approximately $1.7 billion of PREPA bonds.
Represented a group of bondholders that held as much as $3 billion in senior and subordinated bonds issued by the Puerto Rico Sales Tax Financing Corp. (COFINA, by its Spanish acronym), the federal oversight board appointed pursuant to Title III of PROMESA. The U.S. District Court for the District of Puerto Rico has supervised the COFINA restructuring since it commenced a Title III case on May 5, 2017. Kramer Levin represented the bondholder group in negotiations, court-ordered mediation and several multiparty lawsuits in federal court. In September 2018, following months of negotiations, the Kramer Levin bondholder group entered into a plan support agreement with COFINA and other creditor constituencies. The agreement formed the framework for a plan of adjustment, which was confirmed on Feb. 5, 2019, by the district court. The plan, which restructures $17.6 billion of outstanding COFINA bonds, was consummated in a bond exchange that took place in February 2019.