Fast and Fierce: Behind the Scenes of Puerto Rico’s Historic Bankruptcy




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(Reuters) – When Proskauer Rose’s lawyers began working on Puerto Rico’s debt restructuring five years ago and court filings began pouring in, sometimes 25 or 30 longs a day, the president of the litigation department, Timothy Mungovan, likened the firm’s initial proceedings to a makeshift life raft.

Think of Tom Hanks’ construction of bamboo and debris in the movie “Castaway,” he said.

He stayed afloat, but it wasn’t pretty.

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As the company found its sea feet representing Puerto Rico’s Financial Oversight and Management Board in the more than $120 billion bankruptcy and hundreds of related disputes, Mungovan said, “We’ve built an ocean liner over the time, as we crossed the ocean.”

The proceedings reached a historic turning point on January 18 when U.S. District Judge Laura Taylor Swain approved the largest municipal debt restructuring in the United States, my colleague Maria Chuchian reported.

The “adjustment plan” will reduce Puerto Rico’s debt by billions, fix its broken pension system and return the Commonwealth to balanced budgets.

The job is not done – the government-owned electricity company as well as the transport authority are still bankrupt, for example – but the biggest fights have now been resolved.

I had the opportunity to catch up with Mungovan to talk about the unique legal experience in his career, which in its “speed and ferocity”, he said, sometimes resembled “the land rush of Oklahoma, with cases filed out of nowhere. ”

To date, Proskauer has billed $219 million for representation, according to public fee records, with the firm’s 260 attorneys, about a third of Proskauer’s total staff, working on the matter.

The firm’s lawyers charge a flat rate for their work. Initially, it was set at $730 an hour and has since been increased to around $830, records show.

For junior associates, it’s expensive. But conversely, Proskauer’s main partners – who besides Mungovan include Martin Bienenstock, Brian Rosen, Michael Firestein, Margaret Dale, Michael Mervis, Ehud Barak, Paul Possinger and Jeffrey Levitan – worked at great rates. And given the novelty and complexity of the issue, it doesn’t strike me as a job that could be left en masse to inexperienced lawyers.

Mungovan declined to comment on the charges.

The Supervisory Board sees this as money well spent. In one January 2021 press releasehe noted that creditors had filed 172,893 claims totaling approximately $44 trillion and that the legal team had successfully eliminated more than $43 trillion.

“The legal costs incurred represent only a fraction of the savings that have been made and will be made in the future through a substantial reduction in debt service payments,” the council said.

In an interview, the board’s executive director, Natalie Jaresk, praised the “experience, creativity and strategic perspective” of the Proskauer team, adding that they “always felt like they were more than lawyers. They are our partners.

The oversight board was created by the U.S. Congress in 2016 when it enacted the Puerto Rico Oversight, Management, and Economic Stability Act, or PROMESA.

At the time, Puerto Rico was in dire financial straits. He had no cash to pay debt service on $75 billion in bonds or to cover unfunded pensions of about $50 billion, nor did he have the ability to borrow more. .

The seven-member bipartisan Oversight Council has been tasked with making tough (and often unpopular) decisions to deal with the Commonwealth’s budget crisis.

Shortly after its formation, the board conducted a competitive attorney selection process and chose Proskauer from a pool of 48 applicants.

O’Neill & Borges is the local attorney.

Mungovan recalled that he and his colleagues at the time recognized that it would be “a huge commitment, and one that we knew would take away from our usual practices and our day-to-day work”.

They were right, although he said he had gone to great lengths to continue handling disputes for other clients, “even though Puerto Rico is a full-time job.”

Traditional Chapter 9 bankruptcy protection was not an option because Puerto Rico is a US territory. Instead of this protection, the new law created a court-supervised bankruptcy process known as Title III.

It is a new legal foundation, with no direct case law to guide the way. On a Zoom call, Mungovan showed me his bound copy of the 62-page PROMESA legislation — “my Bible” — he called it, a rainbow of highlighted text and flagged pages.

Seems to me like the pleading version of the old curse, “May you live in interesting times.” But the work has also been fascinating.

“We’ve had many, many discussions internally and with our client and with colleagues representing the government and the legislature (of Puerto Rico) about how to interpret the law,” Mungovan said. “It has never been examined before.”

According to Mungovan, the work included more than 100 adversarial proceedings, which are separate from the main bankruptcy, and more than 400 contested cases within the main case.

Of the cases that were appealed, he said Proskauer won 17 cases and lost four, with one split decision.

Dozens of other companies represented stakeholders in the proceedings, including O’Melveny & Myers as counsel to the Governor of Puerto Rico and the Puerto Rico Tax Agency and Financial Advisory Authority.

In total, the case has racked up around $1 billion in legal fees to date.

It also comes against the backdrop of a devastating natural disaster, when Hurricane Maria hit in September 2017, as well as the pandemic.

One of the things Mungovan said is most proud of is that the company has never missed a filing deadline. Normally, of course, this is not something to brag about. It’s just expected. But a normal case doesn’t have 60,000 substantive documents and more than 3,300 separate deadlines for pleadings.

Over time, the company implemented custom software to track deadlines and scheduling.

Every day, dozens of Proskauer lawyers receive an email – a table listing what is due that day and the next day, this week, that month and the next month, including internal deadlines such as when drafts should be reviewed by the prime partner and the client. They also receive an email with the documents filed daily by all parties.

As the work draws to a close, I asked Mungovan, will this leave a Puerto Rico-shaped hole in his life?

He’s laughing.

“The down transition is normal and natural and good,” he said. “As a litigator and lawyer, I like new challenges.

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