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Dykema Vying for Cleary’s Role in Puerto Rico’s Debt Restructuring

By on December 29, 2016

BY PHILIPE SCHOENE ROURA & LUIS J. VALENTÍN ORTIZ

SAN JUAN — Dykema, a Michigan-based law firm, is vying to take on restructuring advisers Cleary Gottlieb’s role for the administration of Gov. Ricardo Rosselló, three sources told Caribbean Business.

“Dykema has accompanied Rosselló and his team in several meetings with creditors both in New York and Puerto Rico,” one Wall Street source said. “They are pushing to become Cleary in [upcoming] debt negotiations.” Dykema has been part of government transition efforts, and Caribbean Business learned that at least two of the firm’s employees attended the recent meeting in Fajardo of Promesa’s fiscal board.

A spokesperson for the incoming administration confirmed to Caribbean Business that Dykema advised Rosselló’s transition committee, although denying that it has already been retained to take over Cleary’s role.

“Dykema advised the incoming [administration’s] Transition Committee. At present, several firms are being evaluated and it is not correct that [Dykema] or any other firm has been retained to take over the work of Cleary & Gottlieb,” reads the written statement.

According to sources, other firms that have been considered by the incoming administration include global law firms Dentons, Cadwalader and O’Melveny, all of which have teams of high-profile legal and policy experts on staff who possess vast experience in all practices and areas including complex restructuring of distressed utilities and municipalities.

Moreover, some sources questioned the current capacity of Dykema to take over Cleary Gottlieb’s workload. “They are certainly not Cleary,” said one source alluding to Dykema’s more limited scope compared to the other firms being considered.

Cleary Gottlieb has been part of a debt-restructuring-advising trifecta that included Millco—led by former U.S. Treasury Chief Restructuring Officer Jim Millstein—and Kirkland & Ellis, the Alejandro García Padilla administration’s main litigators against creditors’ lawsuits currently stayed in federal court pursuant to Promesa. Citi has also advised the outgoing government.

First retained back in 2014, the government signed last August a new contract with Millco for $8.8 million, while it signed two with Cleary in July amounting to roughly $11 million. All three run until summer 2017.

Millstein and Cleary Gottlieb’s Richard Cooper were largely responsible for taking the García Padilla administration’s case—that Puerto Rico’s debt is unsustainable and broad restructuring was needed—to creditors on Wall St. The dog and pony show had the tandem, with the blessing of the U.S. Treasury, arguing that Puerto Rico’s debt service payments towered at 36% of government revenue, as they segued into the explanation of a “superbond” proposal that amounted to haircuts across the board, tied to each credit’s strength.

Although sources inside the Rosselló administration have let on that Millstein is unlikely to remain in his role long term, he has been asked by members of the Financial Oversight & Management Board to remain for at least one month to help in the transition of the new financial and legal advisers.

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