Puerto Rico Turns to Mediation for Assistance in Solving its Financial Crisis

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There are better ways to handle a crisis than what this artwork suggests.

By Donald L. Swanson

“Puerto Rico’s federally appointed financial oversight board scheduled mediation in debt restructuring talks between the U.S. Territory’s general obligation bondholders and holders [of other debts] backed by sales tax revenue.” The mediation “will run from April 10-13 in New York.”

–Reuters.com, March 31, 2017, at 11:09 a.m.

An hour later, March 31, 2017, at 12:10 p.m., Reuters.com publishes this more-detailed information:

The focus of the proposed mediation is “to resolve strife between” two groups of creditors: one holds $17 billion of general obligation debt, and and the other holds $18 billion of debt backed by sales tax revenue. Both sides claim ironclad legal rights to payment.

The next few weeks will be critical for Puerto Rico, whose $70 billion debt load is pushing its economy toward collapse.” And May 1 “marks the expiration of a freeze on creditor lawsuits.”

Some creditors prefer direct negotiations over mediation, citing delay concerns. Accordingly, the mediation proposal says that “creditors who object to mediation” can submit offers directly to the Oversight Board, which will then be shared with the mediator.

The following information is from an Elnuevodia.com article dated a day earlier — March 30, 2017, at 10:27 a.m.:

The proposed mediation . . . could start this week if the Island’s various creditors and municipal bond insurers agree.”

This mediation development “seems to be a total about-face” after various creditors “criticized” the Government and Oversight Board efforts thus far.

The letter “inviting bondholder groups to enter a mediation process” began receiving positive responses: several bondholder groups, for example, “have already stated their availability to enter a mediation process,” provided such a process is “non-binding.”

But some are skeptical of the mediation effort: “We see it as a delay tactic,” one source said, since the primary bondholders have not yet joined the process—which fact remains true as of “press time.”

Kudos and Congratulations

Kudos and congratulations to Puerto Rico’s Financial Oversight Board for this mediation initiative!!

[Note: Congress recently created the Financial Oversight Board to “provide a method” for Puerto Rico “to achieve fiscal responsibility and access to the capital markets.”]

Puerto Rico is now joining a long line of governmental entities who turn to mediation for assistance in resolving a financial crisis.

Additionally, kudos and congratulations are in order for the Board’s approach, noted above, for dealing with parties who prefer direct negotiations.  The approach is to have such parties submit offers directly to the Board, which then refers the offers to the mediator.  This is creative and clever!

Examples of Proactive Mediation Success for Governments

An example of mediation success for other governmental entities in financial crisis is the country of Argentina, which experienced a $100 billion debt default crisis in 2002.  Argentina reached partial resolutions of that crisis in 2005 and 2010, and it achieved a final mediated settlement in 2016.

The most famous example of mediation success for a governmental entity is the City of Detroit bankruptcy, in which a team of proactive mediators held hundreds of mediation sessions and helped resolve the seemingly intractable financial problems of a large city. Such a mediation process is declared to be “an ideal model” for restructuring efforts by other governmental entities.

Hopefully, Puerto Rico’s Financial Oversight Board will be able to successfully pursue the same types of proactive mediation processes that worked effectively elsewhere!

Can anyone provide further information on what’s happening with this mediation effort?

How Argentina’s Debt Resolution Process is a Model for Addressing Puerto Rico’s Debt Issues

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By Donald L. Swanson 

Let’s start by acknowledging that Argentina’s road from a $100 billion debt default in 2002 to a final mediated resolution in 2016 has been long and complex and difficult.  The road began during an economic crisis, reached partial resolutions in 2005 and 2010, and achieved a final mediated-resolution in 2016.

During that time multiple lawsuits were filed against Argentia in the U.S. District Court for the Southern District of New York by its creditors, and Judge Thomas P. Griesa of that Court took an active role in addressing the default problems.

On June 23, 2014, Judge Griesa appointed New York trial attorney, Daniel A. Pollack, as mediator in the Argentina cases.  And the subsequent mediation process ultimately achieved the final resolution in 2016. Continue reading “How Argentina’s Debt Resolution Process is a Model for Addressing Puerto Rico’s Debt Issues”

Argentina: What Can We Learn From a Mediation That Achieves $8 Billion in Cash Settlements From a Distressed Debtor?

By: Donald L. Swanson

The distressed debtor is the Republic of Argentina.

Ok .. . so not everyone gets to handle a case of this magnitude.

But, as for $8 billion in cash settlement payments and $100 billion in total defaults . . . it’s merely a matter of locating the decimal point in a different place than what most of us are used to seeing.  Otherwise, Argentina is pretty much the same, I’d guess, as other cases, whether small or large.

Over the years, I’ve become fond of saying that there is no such thing as a “small” or a “large” case–the intensity of emotion and the desire to prevail are rarely changed by the amount of money at stake. Continue reading “Argentina: What Can We Learn From a Mediation That Achieves $8 Billion in Cash Settlements From a Distressed Debtor?”