Puerto Rico Warns of Cash Crunch When Debt Moratorium Ends
Puerto Rico's government warned in a liquidity report released yesterday that it will run out of money in less than three months as the U.S. territory pushes for permission to restructure nearly $70 billion in public debt, the Associated Press reported. The report notes that the island faces a $1.3 billion debt payment in February, when a temporary debt moratorium imposed this year by the U.S. government expires. Another $934 million in bond payments is due from March through June. Puerto Rico has already defaulted on several multimillion-dollar bond payments in recent months, angering creditors who have filed multiple lawsuits and accuse the government of exaggerating its situation. Government officials warned yesterday that if the moratorium is not extended, the island will run out of cash to provide essential services. The report also warned that the island's pension system, which is underfunded by more than $40 billion, will run out of cash in 2018 unless the government takes steps such as increasing contributions. The government released the report two days before a federal control board charged with overseeing the island's finances meets in Puerto Rico for the first time.
Don’t miss the “Puerto Rico, ‘Super Chapter 9’ and the Future of Sovereign Debt” session at ABI’s Winter Leadership Conference at Terranea Resort from Dec. 1-3. Register here.
Commentary: Trump’s Presidency Raises Questions on the Future of Wall St. Regulation
At times during the campaign, Donald J. Trump suggested he would reinstate the old Glass-Steagall rules as part of repealing Dodd-Frank, according to a commentary by Prof. Stephen Lubben in Wednesday's New York Times DealBook blog. These were the New Deal regulations, in force until the late 1990s, that kept depository banks separate from investment banks and insurance companies. A change like that addresses only a part of the broader scope of the post-crisis overhaul. Some have suggested moving all of what is now covered by the Orderly Liquidation Authority, the Federal Deposit Insurance Corporation’s new insolvency system for “too big to fail” institutions, into the broader bankruptcy system. That might work, but often it is also suggested that these big bank cases should be put in front of life-tenured district court judges, rather than bankruptcy court judges who serve 14-year terms, because the cases are apt to be so politically fraught, according to Lubben. That would seem to lose most of the benefits of the current bankruptcy system, which operates as well as it does because of the practical, common-sense approach that most of the bankruptcy judges bring to cases. Moreover, Lubben writes that district court judges are generalists and spend little of their time thinking about insolvency. And reinstating Glass-Steagall will not address derivatives, according to Lubben.
PBGC: Shortfalls Grow for the Insurance Fund Protecting Millions of Pensions
The struggles continue for the insurance fund backing millions of multiemployer pension plans, according to a government report released yesterday, the Washington Post reported today. The Pension Benefit Guaranty Corp., which insures private pensions, said it is $58.8 billion short of the cash it needs to cover benefits for multiemployer pension funds that are expected to run out of money within 10 years. That is up from the $52 billion deficit seen last year, marking a new high. With roughly $2 billion in assets, the insurance fund is on pace to run out of money by 2025, if not sooner, the agency said. The growing deficit puts more pressure on Congress to raise the insurance premiums that companies pay into the multiemployer insurance fund or to come up with another solution to keep the insurance fund afloat. In June, the PBGC said that premiums need to increase by 360 percent from the current rate of $27 per person to keep the program from running out of money.
Pension Battle Pushes Precedent in Distressed California Town
The board of the California Public Employees’ Retirement System (CalPERS) yesterday voted to cut the retirement benefits of Loyalton, Calif., municipal workers because the town government failed to fund its long-term liabilities, Bloomberg News reported yesterday. It may be the first time the largest U.S. public pension has taken such a step. Recent California municipal bankruptcies kept pensioners whole, underscoring the sanctity assigned to benefits earned by workers. However, mounting retirement costs give many municipalities little choice, especially if they must make up for lackluster investment returns that were supposed to pay for the lifetime checks, said State Assemblyman Brian Dahle, a Republican who represents Loyalton. "They can’t bail everybody out in the same situation," Dahle said of CalPERS before the decision. "There’s a lot of municipalities in California, counties and cities, that are putting out a lot of their income to pensions." Across the country, local governments are short about $2 trillion of what they need to cover retirement benefits granted in boom times. Investment losses during the recession that ended in 2009, benefit increases, years of governments failing to make adequate contributions, rising retirements and fewer current workers paying into the systems have exacerbated the gap.
Commentary: Does the Oil-and-Gas Industry Still Need Tax Breaks?
U.S. oil-and-gas companies receive billions of dollars in federal tax incentives annually linked to activities such as tapping new wells, but a Wall Street Journal commentary on Monday asked the question: Do these incentives benefit consumers, or are they simply gifts that unfairly favor the fossil-fuel industry? Not only has President Barack Obama repeatedly called for a repeal of much of the oil-and-gas industry’s favorable tax treatment, his budget proposal for fiscal 2017 included a new $10-a-barrel fee on oil to help fund low-carbon infrastructure projects. Industry supporters say that tax incentives have fueled investments in unconventional production, which has led to abundant supplies of oil and gas and lower prices for consumers.
U. Penn's Wharton School of Business Repeats as Champion at ABI's 13th Annual Corporate Restructuring Competition
A team of students from the The Wharton School at the University of Pennsylvania took top honors for the second consecutive year at ABI’s 13th Annual Corporate Restructuring Competition. The Wharton School, which served as the host of the event in Philadelphia, bested five other schools at the competition, which was held from Nov. 10-11. This is the school’s sixth time overall in receiving the Bettina M. White Trophy, which is presented each year to the winning team. A team from Cornell University came in second place, while a second team from the Wharton School took third. ABI’s Anthony H.N. Schnelling Endowment Fund provided cash prizes of $6,000, $3,500 and $2,500 for the top three teams, respectively. Other top schools competing this year were Northwestern University (Kellogg School), NYU (Stern) and the University of Chicago (Booth). ABI thanks the major sponsors of this year’s competition, including Alston & Bird, Duane Morris, Huron Consulting Group and PJT Partners.
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New on ABI’s Bankruptcy Blog Exchange: The Regulatory World Won't Change Overnight
While President-elect Trump's influence on the financial industry may ultimately be substantial, any change is going to be slow to develop, according to a recent blog post.
