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No time for ‘Hail Mary Pass’ in Debt Game

By on March 31, 2016

In the game of American football, there is a desperation play that involves heaving the ball more than 40 yards in the air, hoping a receiver from the offensive team will haul the ball in as time expires. It is called the “Hail Mary pass,” for it is a prayer play that borders on the miraculous—a last resort when there is little time on the clock and the offensive team must travel a long distance to obtain a score to either stay in the game or snatch an improbable victory from what was otherwise certain defeat.

Many of those same conditions exist today in Puerto Rico’s gridiron showdown with creditors. The clock is winding down, it is fourth and goal, and the commonwealth’s restructuring brigades have a massive stretch of yardage to cover.

In football, Francis “Fran” Tarkenton, the legendary quarterback for the Minnesota Vikings during the 1970s, was known for scrambling before launching his desperation passes. In Puerto Rico’s restructuring game, the quarterback is Jim Millstein, a former chief restructuring officer for the U.S. Treasury, who is scrambling to meet the demands of some 18 creditor groups. He has been fleet of foot—it has yet to be seen if they have tired and are coming to grips with the fact that they will be grinding it out as the clock expires. There will be no Hail Mary pass—not in the U.S. Supreme Court where the recent hearing of oral arguments over the enforceability of the Debt Enforcement & Recovery Act looms large in the outcome of this contest. A decision favoring the Recovery Act would grant the commonwealth a mechanism to restructure its public corporations’ debt.

No one should wish the untimely passing of friend or foe—but deep down, the plaintiffs must have felt the planets aligning when Justice Antonin Scalia moved to a higher judicial plane. Scalia was known for carrying the torch of originalism, bound to interpreting the U.S. Constitution according to the original meaning penned by the document’s drafters; he did not see the Magna Carta as a living, breathing document.

Scalia is no doubt in a better place, just as the chances of overturning the appellate court’s ruling have improved as the balance of justices who seem likely to side with the defendants have shifted with his death.

There are several possible scenarios in the high court—the Supremes could order the Recovery Act’s validation by the appellate court. The nine (now seven, actually, because of Scalia’s death and Judge Samuel Alito recusing himself) could send it back to the appellate court and ask for a reconsideration. The one thing that seems certain is that the Supremes will not act in time to help the severely decapitalized Government Development Bank to meet its debt-service payment on May 2.

Then there’s Congress, which has a huge audience holding its collective breath in anticipation of draft legislation to be formally submitted this week. As this newspaper was going to press, Rep. Rob Bishop (R-Utah) was to have filed a draft of a measure—leaked to the New York Times as a trial balloon—that is certain to draw staunch opposition from Democrats in the Senate who have been aggressively lobbied to defeat the bill. Their opposition traces to very onerous covenants in the text that promise to be voted down.

There will be no Hail Mary pass before May 2 and few people seem hopeful that more time will be put on the clock so that creditors and the commonwealth can grind it out. No matter what, this is unavoidable: consensual restructuring and moratoriums will come into play until the mess can be figured out.

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