Sunday, December 16, 2018

[Editorial] Don’t Cry For Macri—Wall Street

By on December 7, 2018

Editor’s note: The following originally appeared in the Dec. 6-12, 2018, issue of Caribbean Business.

The precept: When you pass a flimsy law, expect it to be attacked from all flanks—holds particularly true when $70 billion in debt is in play and millions are to be made by high-powered lawyers staking a claim in a litigation jamboree. Such is the case in the Puerto Rico Oversight, Management & Economic Stability Act (Promesa) sweepstakes, which has helped generate close to $300 million—and counting—in legal fees for a handful of high-powered law firms in just two years.

Don’t cry for Macri—Wall Street; save a few tears for Puerto Rico, for it has a debt-restructuring law wrapped in the barbed wire of jurisprudence.

We need only revisit the run-up to passing Promesa to understand the nuanced language underpinning the frailties exposing the law to challenges on all fronts. In those early days of Promesa’s creation, the drafters wrangled over the ingredients—the law should have a Title III for bankruptcy proceedings to restructure massive debt; the law should have a Title VI for consensual negotiations to help bind holdouts in deals and keep litigation in check; throw in a Title V to put infrastructure projects on a fast track. And then, make it clear that this is a territorial creature available only to territories, so we don’t have a conga line of municipalities begging for Promesa-style relief. In the end, Promesa’s founding fathers came up with a recipe for disaster.

No sooner had Promesa been passed than challenges were leveled from competing interests. Prior to the Financial Oversight & Management Board’s (FOMB) naming, procedural issues were raised that could have impugned the candidates before taking their seats.

As the Sept. 15, 2016 deadline for U.S President Barack Obama’s naming of the fiscal control board was fast approaching issues remained unresolved in the selection of candidates coming from the Republican side of the aisle. Lists had already been received by Obama from the Speaker of the House, the Senate Majority Leader, the Senate Minority Leader and the House Minority Leader—all of whom had said they would not be submitting more names for scrutiny by the executive.

According to Promesa, the Republican leadership in U.S. Congress were to have had two appointments each selected by Obama from shortlists submitted to the White House. That is where horseplay ensued as rumors had it that the Executive was not satisfied with the nominees and might be requesting additional names.

At the time it was unclear whether then-Senate Majority Leader Mitch McConnell would bolster his list, in direct response to a political ploy by the Obama White House, first reported by Caribbean Business, that could reject the names from McConnell’s list, which would have forced those names to go through a Senate confirmation process.

The U.S. President wound up certifying the nominees prior to the deadline. Even so, challenges to the constitutionality of Promesa lingered on grounds that it violated the appointments clause.

Constitutional issues remain at the fore. In a most recent case that made its way to the First Circuit Court of Appeals in the District of Boston, the constitutionality of Promesa was challenged on the grounds that it violated the appointments clause. In the case, Aurelius Capital Management, a hedge fund holding Puerto Rico debt, and the Irrigation & Electrical Workers Union (Utier by its Spanish acronym) contend that Promesa violates the U.S Constitution because FOMB members were not appointed directly by the U.S. President and confirmed by the U.S. Senate as established by the Appointments Clause of the U.S. Constitution.

The first circuit panel seems disinclined to declare Promesa unconstitutional; it seems instead they will decide it is a mess under Article IV of the U.S. Constitution to be fixed by the founders who created the law.

If the most recent harangue is any indication, 2019 promises to present some rather interesting scenarios under Promesa. Plans of adjustment for various government instrumentalities will be set in motion, debt restructuring term sheets could become final deals at long last and, according to law, names for a new board will be presented for certification by U.S. President Donald J. Trump.

Come September 2019, the Senate Majority Leader and Speaker of the House will each submit their lists; the Senate Minority Leader and House Minority Leader will each submit their candidates and the U.S. President will submit one name—the list must be certified by the U.S. President.

Once again, failure to certify by the September deadline would send the FOMB nominees to U.S. Congress for confirmation by the Judiciary Committee in the Republican-led U.S. Senate. With the foibles of oversight past fresh on their minds, U.S. Congress will be asking itself who in their right mind would want to take on the complexities of Puerto Rico’s debt restructuring? Would they care if the finalists were up to snuff or would it suffice that they not give a damn about Puerto Rico politics—just clean house a la Foraker and move on?

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