Sports Authority Reportedly Preparing to File for Bankruptcy

Provided by MSN

Sports Authority Inc. is preparing to file for bankruptcy as it faces a debt payment due in 10 days, according to people with knowledge of the matter.

The retailer, once the biggest sporting-goods chain in the U.S., is in talks with lenders including TPG Capital Management LP on a deal to reorganize in Chapter 11 bankruptcy proceedings, said the people, who asked not to be named because the negotiations are private. It’s also mapping out a plan to close as many as 200 of its more than 450 stores under the bankruptcy plan, the people said.

Sports Authority is negotiating with creditors as the clock ticks on a $20 million interest payment that it skipped last month on its $343 million of subordinated debt. It’s been talking to holders of those bonds about accepting a loss in exchange for other securities, said the people. The company would be able to stave off a bankruptcy filing if it reaches a deal with the bondholders.

Representatives for Sports Authority and TPG declined to comment.

The retailer, which has at least $643 million in debt, has struggled to keep up with competition from old rivals such as Dick’s Sporting Goods Inc. as well as newer entrants like Lululemon Athletica Inc., Gap Inc.’s Athleta and even Amazon.com Inc. Fort Worth, Texas-based TPG provided Sports Authority with $70 million of a $95 million asset-backed loan late last year that enabled it to operate through the holiday season, a person said.

The subordinated bondholders are being advised by Houlihan Lokey Inc. The company’s advisers are Rothschild & Co., FTI Consulting Inc. and Gibson Dunn & Crutcher LLP.

Sports Authority was bought by a group led by private equity firm Leonard Green & Partners LP for $1.3 billion in 2006. A spokeswoman for Leonard Green didn’t respond to telephone and e-mail messages seeking comment.

Written by Jodi Xu Klein and Lauren Coleman-Lochner of Bloomberg

(Source: MSN)

Oil Plunge Sparks Bankruptcy Concerns

Bloomberg News

Crude-oil prices plunged more than 5% on Monday to trade near $30 a barrel, making the specter of bankruptcy ever more likely for a significant chunk of the U.S. oil industry.

Three major investment banks—Morgan Stanley, Goldman Sachs Group Inc. and Citigroup Inc.—now expect the price of oil to crash through the $30 threshold and into $20 territory in short order as a result of China’s slowdown, the U.S. dollar’s appreciation and the fact that drillers from Houston to Riyadh won’t quit pumping despite the oil glut.

As many as a third of American oil-and-gas producers could tip toward bankruptcy and restructuring by mid-2017, according to Wolfe Research. Survival, for some, would be possible if oil rebounded to at least $50, according to analysts. The benchmark price of U.S. crude settled at $31.41 a barrel, setting a 12-year low.

More than 30 small companies that collectively owe in excess of $13 billion have already filed for bankruptcy protection so far during this downturn, according to law firm Haynes & Boone.

Morgan Stanley issued a report this week describing an environment “worse than 1986” for energy prices and producers, referring to the last big oil bust that lasted for years. The current downturn is now deeper and longer than each of the five oil price crashes since 1970, said Martijn Rats, an analyst at the bank.

Together, North American oil-and-gas producers are losing nearly $2 billion every week at current prices, according to a forthcoming report from AlixPartners, a consulting firm, that is set to be published later this week.

“Many are going to have huge problems,” said Kim Brady, a partner and restructuring adviser at consultancy Solic Capital.

American producers are expected to cut their budgets by 51% to $89.6 billion from 2014, a reduction that exceeds the worst years of the 1980s, according to Cowen & Co. There is no relief in sight: The oil glut is expected to continue well into 2017, according to several banks, analysts and industry executives.

With little likelihood of an oil price rebound in the coming months, the companies that tap shale wells from Texas to North Dakota are splintering into the haves and have-nots.

Energy companies that took on huge debt loads to finance their slice of the U.S. drilling boom have no choice but to keep pumping to generate cash for interest payments. As they do, they are drilling themselves into a deeper hole. Companies including Sandridge Energy Inc., Energy XXI Ltd. and Halcón Resources Corp. all paid more than 40% of third-quarter revenue toward interest payments on their loans, according to S&P Capital IQ. Representatives for Sandridge and Halcón didn’t respond to requests for comment.

Greg Smith, Energy XXI’s vice president of investor relations, said the company has bought back more than $900 million in bonds to reduce interest expenses.

Some of the strongest operators with superior assets have locked in oil prices well above $50 a barrel this year through hedges, which serve as a kind of insurance policy against low prices. Even those producers with better balance sheets say they will keep pumping more. ConocoPhillips and Pioneer Natural Resources Co., two of the most successful shale operators in the U.S., plan to boost production this year.

Scott Sheffield, chief executive at Pioneer, said pulling more oil and gas out of the ground makes sense even though prices are low because the company’s most efficient wells still make good returns. Plus investors keep rewarding growth at energy companies considered to be solid.

“The ones that announced production declines into 2016, their stocks are getting hammered,” Mr. Sheffield said in an interview. Pioneer’s shares have lost about 16% in the past year, but the company successfully sold $1.4 billion worth of new stock last week in an oversubscribed equity offering.

Companies that drill themselves into a hole so deep they cannot escape will be forced to sell assets or tap revolving credit lines. That is a tricky proposition given that many energy players expect to see their borrowing bases cut as debt limits are reduced in light of the plunging value of oil-and-gas reserves in the ground.

More than $100 billion from private-equity firms is waiting in the wings to scoop up assets that are sold either before, or after, bankruptcy, experts say. But major corporate mergers and acquisitions remain unlikely, because any buyer would have to pony up voluminous amounts to cover the debts of a seller. Instead, opportunistic firms are waiting for the wave of bankruptcies to arrive. Once debt is wiped out, oil-and-gas fields will be cheap. The longer the oversupply sticks, depressing prices, the more companies will falter, leaving their assets ripe for picking at a discount.

“There’s no reason to be anybody’s savior,” said Chad Mabry, a senior energy analyst at FBR & Co. “If you can just get the assets out of bankruptcy, then you don’t have to save anyone.”

If an array of U.S. shale companies go bankrupt or assets fall into new hands and bondholders get crushed, bankruptcies will wipe the debt slate clean and lower the oil price needed to fetch a profit.

Projections for losses on energy loans continue to rise broadly, and some banks have started to raise their own forecasts for such losses. In a biannual review by a trio of banking regulators, the value of loans rated as “substandard, doubtful or loss” among oil and gas borrowers almost quintupled to $34.2 billion, or 15% of the total energy loans evaluated. That compares with $6.9 billion, or 3.6%, in 2014.

The largest U.S. banks have relatively small energy portfolios in the context of their overall lending. For instance, in the third quarter Wells Fargo & Co.’s oil-and-gas loan exposure was 2% of its total loans, roughly $17 billion, according to company filings. The bank, one of the largest energy lenders in the U.S., reports earnings Friday.

Since financial distress hasn’t been a good mechanism for slowing down U.S. oil production, many analysts fear that any pullback may come too late. U.S. government estimates pegged output at 9.2 million barrels a day at the start of 2016—1% higher than the start of last year when oil was trading for 40% more.

Written by Bradley Olson and Erin Ailworth of The Wall Street Journal

(Source: The Wall Street Journal)

American Apparel Founder Says He’s Broke and Can’t Afford Lawyer

© Provided by Bloomberg

(Bloomberg) — Ex-American Apparel Inc. Chief Executive Officer Dov Charney lives in a Los Angeles mansion with eight bedrooms, but says he can’t scrape together enough cash to keep paying a lawyer.

Charney is now representing himself in a lawsuit filed against him by the hedge fund Standard General, a backer of American Apparel. The 46-year-old told a Delaware judge that if he can’t raise money to hire a new lawyer, he’ll continue doing his own legal work.

Since American Apparel’s board ousted him in 2014, Charney has waged a costly legal campaign to regain control of the company he founded. When American Apparel filed for bankruptcy last month, it crushed the value of his remaining stock, which represented much of his net worth. He still has his house, which spans more than 11,000 square feet in the Silver Lake neighborhood of Los Angeles.

“As you may know, I was fired by American Apparel, the company I founded in Montreal over three decades ago, with no severance or otherwise,” Charney said in a letter dated Wednesday to the judge presiding over the case. “All of my shareholder interests have been wiped out, and I have depleted my savings on defending my life’s work and legal rights.”

Charney declined to comment on the situation, but said he still has lawyers working for him in California where he has filed a handful of lawsuits.

Clash With Board

The American Apparel board first suspended Charney in June 2014 for allegations of misconduct, including misusing funds and violating the sexual-harassment policy. After more investigating, it fired him in December and named a new CEO. A lawyer for Charney has denied the allegations.

Charney’s current predicament represents a sharp decline from his previous post, said Robin Lewis, CEO of the Robin Report, a retail strategy publication. But don’t count him out because he has “been able to wiggle out of more problems than anyone I’ve ever known,” Lewis said.

Charney has said in a lawsuit that he was fired because other American Apparel executives wanted to sell the company and knew he wouldn’t approve. He also alleged that Standard General promised to reinstate him, and was then “betrayed” by the firm. Both American Apparel and Standard General have denied Charney’s allegations.

Sleeping on Couch

This isn’t the first time Charney has said he’s low on funds. About a year ago, he told Bloomberg News that he was down to his last $100,000 and sleeping on a friend’s couch while he stayed in New York. In his last year as CEO, he made a base salary of $832,000.

In the Delaware case, Standard General claims he violated an agreement with the hedge fund that was part of his effort to regain control of the retailer. Charney has also sued Standard General for defamation.

A judge ruled last month that Charney wasn’t entitled to have American Apparel’s insurance cover his legal costs in defending the suits.

This case is Standard General LP v. Dov Charney, CA NO. 11287, Delaware Chancery Court (Wilmington).

Written by Matt Townsend and Jef Feeley of Bloomberg

(Source: Bloomberg)

The Student Loan Crisis is Now Snagging Seniors

Most debt you can get out of—painful as it might be. Credit card debt can be cleared in bankruptcy. A mortgage can end in foreclosure. But student debt is stickier, and it turns out it can have big consequences in retirement.

Last year, Richard Minuti’s Social Security payments were cut by 10%.

The Philadelphia native was already earning only a bit over $10,000 a year, including some part-time work as a tutor. “I was desperate,” says Minuti. “Taking 10% of a person’s pay who’s trying to live with bills, that’s the cruelty of it.”

The Treasury Department was taking the money to pay for federal student loans he had taken out years before. Just before age 50, Minuti had gone back to college to get a second bachelor’s degree and a better job in social work and counseling. But the non-profit jobs he landed afterwards were lower paying, and he defaulted on the debt.

Student debt’s painful new twist

Minuti is one of the small but expanding group of seniors who are hitting retirement with a student debt burden. Over the past decade, people over the age of 60 had the fastest growing educational loan balances of any age group, according to the Federal Reserve Bank of New York. The total amount grew by more than nine times, from $6 billion in 2004 to $58 billion in 2014.

SeniorEduLoanGrowth

© Provided by Money SeniorEduLoanGrowth

Only about 4% of households headed by people age 65 to 74 carry educational debt, according to a 2014 U.S. Government Accountability Office report. But as recently as 2004, student loans balances in retirement were close to unheard of, affecting less than 1% of this group.

Educational loans are very difficult to pay off when you are in or near retirement. Unlike a new college grad, there’s little prospect of years of rising salary income to help pay off the loan. That’s one reason older debtors have the highest default rate of any age group. (Also, most people who can’t pay off a loan will eventually age into being included among older debtors.) Over half of federal loans held by people over age 75 are in default, according to the GAO.

Student loan debts can’t be discharged in bankruptcy. And, as Minuti learned, federal tax refunds and up to 15% of wages and Social Security can be garnished.

This can be devastating, says Joanna Darcus, consumer rights attorney at Community Legal Services of Philadelphia.

“Most clients find me because the collection activity that they’re facing is preventing them from paying their utilities, from buying food for themselves, from paying their rent or their mortgage,” says Darcus, who works with low-income borrowers.

The number of seniors whose Social Security checks were garnished rose by roughly six times over the past decade, from about 6,000 to 36,000 people, says the GAO. Legislation from the mid-1990s ensured recipients could still get a minimum of $750 a month. At the time, this was enough to keep them from sliding below the poverty threshold. But to meet the current threshold, Congress would need to increase this to above $1,000 a month.

In other words, with enough debt, a Social Security recipient can be pulled into poverty.

“That’s pretty stressful for seniors when they understand that,” says Jan Miller, a student loan consultant who has seen a rise in his senior clients.

What’s behind the rise?

It’s not, despite what you might guess, only about parents who are taking on loans for their kids late in their careers.

In the GAO data, about 18% of federal educational debt held by seniors was from Parent PLUS loans for children or grandchildren. The remaining 82% was taken out by the borrower for his or her own education. (The GAO data differs from the New York Fed’s, showing lower total balances, so it may be missing some parental borrowing.)

SeniorLoansforOwnEdu

© Provided by Money SeniorLoansforOwnEdu

Darcus says many of her clients turned to education as a solution to unemployment and long-stagnant wages. Enrollment for all full and part-time students over age 35 increased 20% from 2004 to its recessionary peak in 2010, according to the National Center for Education Statistics.

“Among many of my clients, education is viewed as a pathway out of poverty and toward financial stability, but their reality is much different from that,” Darcus says. “Sometimes it’s their debt that keeps them in poverty, or pushes them deeper into it.”

And in recent years, both tuition and older debts have been especially difficult to pay, as home values and household assets took a hit in the Great Recession. Meanwhile, of course, the cost of higher education has soared. Tuition for private nonprofit institutions is up 78% in real dollars since 2004, according to the College Board.

What may be changing

New regulations and legislation this year may bring some relief to educational loan borrowers. The Senate in March introduced legislation to make private loans, but not federally subsidized loans, dismissible through bankruptcy.

For federal loans, more favorable income-driven repayment plans may be extended to up to 5 million borrowers this year. These plans, which have been growing in popularity since launching in 2009, adjust monthly payments according to reported discretionary income. The Department of Education is scheduled to issue new regulations by the end of 2015 that may allow all student borrowers to cap payments at 10% of their monthly income.

But it is unclear what percentage of that 5 million people are older borrowers who would benefit. Some borrowers have also complained that income-driven repayment plans require too much complex paperwork to enroll and stay enrolled.

Parent PLUS loans would not be included in the new regulations. However, Parent PLUS loans can still be consolidated in order to take advantage of a similar, albeit less generous option, called the Income Contingent Repayment plan. This plan allows borrowers to cap their monthly payments at 20% of their discretionary income.

Still, some feel the best way to help seniors with student loan debt is to stop threatening to garnish Social Security benefits altogether. This spring, the Senate Aging Committee called for further investigations of the effects of student debt on seniors.

“Garnishing Social Security benefits defeats the entire point of the program—that’s why we don’t allow banks or credit card companies to do it,” said Sen. Claire McCaskill of Missouri in a statement.

Getting out from under

Richard Minuti was able to enroll in an income-based repayment plan last year with the help of a legal advocacy group. Because Minuti earned less than 150% of the federal poverty level, the government set his monthly obligation at $0, eliminating his monthly payment.

“I’m appreciative of that, thank God they have something like that,” Minuti says, “because obviously there are many people like myself who are similarly situated, 60-plus, and having these problems.”

But Deanne Loonin, director of the National Consumer Law Center’s Student Loan Borrower Assistance Project, says she doesn’t see the trend of rising education debt ending anytime soon. And some seniors will struggle with this debt well into retirement.

“I’ve got clients in nursing homes who are still having their Social Security garnished and they were in their 90s,” she says.

Written by Michaela Ross of Money

(Source: Time)

Eurozone Reaches Deal on Greece

© European Pressphoto Agency
© European Pressphoto Agency

BRUSSELS—Eurozone leaders said Monday morning that they would give Greece up to €86 billion ($96 billion) in fresh bailout loans as long as the government of Prime Minister Alexis Tsipras manages to implement a round of punishing austerity measures in the coming days.

The rescue deal—hammered out after 22 hours of, at times acrimonious, negotiations between the currency union’s leaders and finance ministers—requires the Greek left-wing government’s near-total surrender to its creditors’ demands.

But it gives the country at least a fighting chance to hold on to the euro as its currency.

“The deal is hard,” Mr. Tsipras said after the summit, warning that the measures required by creditors will send the country’s economy further into recession.

European stocks rallied early Monday on the news. By mid-morning, the Stoxx Europe 600 was up 1.5%, building on Friday’s hefty gains. Germany’s DAX rose 1.4%, France’s CAC-40 added 1.9% and London’s FTSE 100 rose 0.6%. In southern Europe, Italy’s FTSE MIB climbed 1.2% and Spain’s IBEX gained 1.5%.

By Wednesday, Athens’s Parliament has to pass pension overhauls and sales tax increases that voters overwhelmingly rejected in a referendum just one week ago. Greece now has to implement European Union rules that make it easier to wind down broken banks, including by sharing the cost with investors and creditors.

“Trust needs to be restored,” German Chancellor Angela Merkel said at a news conference.

“The agreement was laborious. It took time but it was done,” said Jean-Claude Juncker, the president of the European Commission.

“There won’t be a Grexit,” Mr. Juncker added, referring to a Greek exit from the eurozone.

In a concession to Greece, eurozone governments will consider measures to make the country’s debt more manageable, for instance by giving it more time to repay rescue loans.

A detailed rescue program that will have to be negotiated after the first overhauls and cuts have been implemented will contain measures that go far beyond the kind of oversight and external control other governments under eurozone bailouts have endured.

The most divisive step demanded by Greece’s creditors is the creation of a fund that would hold some €50 billion in state-owned assets slated to be privatized or wound down in the coming years. The fund will be under European supervision, Ms. Merkel said.

Most of the money raised will go to pay off Greece’s debt and help recapitalize its broken banks, while €12.5 billion can be used for investment, said Ms. Merkel.

“The advantages outweigh the disadvantages,” she said about the deal, while warning that Greece’s path back to growth will be long and arduous.

Despite these big concessions by Mr. Tsipras, Greece’s future in Europe’s currency union still hangs in the balance.

Passing the tough new bailout measures through Greece’s Parliament could split Syriza and its right-wing coalition partner, the Independent Greeks, which in turn could trigger fresh elections. And there wasn’t an answer on when the country’s banks—closed for most business for the past two weeks—will reopen or how Greece will make a €4.2 billion payment to the European Central Bank on July 20.

The eurozone’s finance ministers will discuss how to come up with a mechanism to meet Greece’s short-term financial needs “as a matter of urgency,” Donald Tusk, the president of the European Council who led the talks, said after the summit.

A statement issued after the summit says Greece will need between €82 billion and €86 billion in fresh funding over the next three years. Between €10 billion and €25 billion will be required to recapitalize Greek banks, damaged by months of deposit outflows and two weeks of capital controls.

French President François Hollande, whose government lobbied hard for Greece in recent weeks, said he expects the ECB to step in with additional liquidity for Greek lenders, as long as Athens follows through on a deal. That could allow banks to gradually reopen.

“That was the indispensable condition, but it will take a few days,” Mr. Hollande said.

In a concession to Greece, eurozone governments will discuss ways to make the country’s debt load more manageable later this year.

“There will be a reprofiling of the debt by extending maturities and doubtless a negotiation on the interest rates,” said Mr. Hollande. “That is part of the agreement.” Ms. Merkel stressed that there won’t be a cut to the nominal value of rescue loans.

European officials said negotiations came close to collapse at some points during the night, when Mr. Tsipras argued that some of the creditors’ demands would be impossible to meet. Germany in particular has been driving a hard line, which for much of the evening included the possibility of a “time-out” for Greece from the currency union.

“In Germany there was strong opinion for Grexit,” Mr. Hollande said, “and not just in Germany.”

“I refused this solution,” he added.

As part of the deal, Greece’s administration will be modernized and depoliticized, Ms. Merkel said, adding that the Athens government will be expected to make first proposals by July 20.

The measures laid out in Monday’s statement reach deep into the workings of Greece’s economy. They include changes to labor laws that would make it easier to fire workers, as well as the further liberalization of markets for products such as pharmaceuticals, milk and baked goods, the statement said. Greece also would have to privatize state assets, including the electricity network operator.

Contrary to Greece’s wishes, the International Monetary Fund will remain involved in bailing it out even after the fund’s existing rescue program expires in March. Athens defaulted on a €1.56 payment to the IMF on June 30 and is unlikely to make a €456 million payment due Monday. The summit statement said it was important for the government to cover the failed payments.

“It has been a laborious night, but I think it is a good step to rebuild confidence,” said IMF Managing Director Christine Lagarde.

Written by Gabriele Steinhauser, Viktoria Dendrinou, Matthew Dalton of The Wall Street Journal

(Source: MSN)

Exclusive: Greek Banks Face Closures, Bailout or Not – Sources

© REUTERS/Cathal McNaughton
© REUTERS/Cathal McNaughton

Some large Greek banks may have to be shut and taken over by stronger rivals as part of a restructuring of the sector that would follow any bailout of the country, European officials have told Reuters.

European leaders will gather on Sunday in a last-ditch attempt to salvage agreement with Greece after months of acrimonious negotiations that have taken the country to the brink of leaving the euro.

But regardless of whether or not fresh funds are now unlocked for the government, some Greek banks, damaged by political and economic havoc, may have to be closed and merged with stronger rivals, officials, who asked not to be named, told Reuters.

One official said that Greece’s four big banks – National Bank of Greece (NBGr.AT), Eurobank (EURBr.AT), Piraeus (BOPr.AT) and Alpha Bank (ACBr.AT) – could be reduced to just two, a measure that would doubtless encounter fierce resistance in Athens.

A second person said that although mergers of banks were necessary, this could happen over the longer term.

“The Greek economy is in ruins. That means the banks need a restart,” said the first person, adding that prompt action was necessary following any bailout between Athens and the euro zone. “Cyprus could be a role model.”

“You have a tiny bit of time … you would do restructuring straight away.”

Greece’s financial system has been at the heart of the current crisis, hemorrhaging deposits as relations between the radical left-wing government of Prime Minister Alexis Tsipras and creditors worsened.

After Athens defaulted on debt owed to the International Monetary Fund last month, the ECB froze emergency funding for the banks, precipitating their temporary closure and a 60-euro daily limit on withdrawals from cash machines.

A decision by Greek voters last week to reject bailout terms offered by the country’s international creditors prompted the ECB to maintain its cap, meaning that the banks will run out of cash soon.

LIQUIDITY AND SOLVENCY

A year ago, Greece’s bankers thought they were on the cusp of a new era. They had restructured as part of the country’s bailout deal, had raised fresh equity from international investors and had regained access to debt markets to fund lending.

But the economic and political turmoil that has ensued since Tsipras came to power in January means that they are dangerously short of cash.

Even after the immediate liquidity problems are worked out, any restructuring of the sector would first require a prompt recapitalization of Greece’s strongest lenders because rising bad debts and exposure to Greek government bonds mean they are in danger of becoming insolvent.

A timeline and exact plan for the sector’s revamp could be finalised after a recapitalization.

Such action would face stiff political resistance in Athens, where Tsipras has pledged to ‘restore our banking system’s functioning’. Bank mergers save money but cost jobs, making them unpopular.

Reflecting such obstacles, a second person said: “There would be an interest in having less banks … but I’m wondering whether this would make sense in the short term.”

Any closures, which would be managed primarily by Greek authorities under the watch of the European Central Bank’s supervisors, would not typically affect customers as their deposits and accounts would migrate to the bank’s new owner.

Greece’s finance ministry was not immediately available for comment, while a spokeswoman for the ECB said: “The ECB Banking Supervision is closely monitoring the situation of Greek banks and is in constant contact with the Bank of Greece.”

CYPRUS MODEL

Any such revamp would be a stark reminder of the withered state of the country’s financial system, where deposits had shriveled to their lowest level in more than a decade before savers were forced to ration cash withdrawals.

Of Greece’s four big banks, National Bank of Greece, Eurobank and Piraeus fell short in an ECB health check last year, when their restructuring plans were not taken into account.

Only Alpha Bank was given an entirely clean bill of health.

A restructuring could follow a similar pattern to Cyprus, where one of the island’s two main banks was closed as part of its stringent bailout, and Ireland, where three lenders were either shut or merged with rivals.

But a senior Greek banker, while acknowledging that the ECB could embark on fresh stress tests and “set the recapitalization, restructuring process going again”, said any mergers would reduce competition.

“If the argument is cost efficiency and whether Greece is overbanked, with four players there is a semblance of competition,” he said. “With fewer players, competition will be reduced even more.”

Written by John O’Donnell of Reuters

(Source: MSN)

Puerto Rico Loses Bid for Restructuring Law as Crisis Mounts

© AP Photo/Ricardo Arduengo
© AP Photo/Ricardo Arduengo

Puerto Rico lost its bid to revive a restructuring law that investors argued conflicts with U.S. bankruptcy code, a blow to the commonwealth as it falls deeper into a fiscal crisis.

Lawyers for Puerto Rico officials had asked the U.S. Court of Appeals in Boston to reinstate the local law to help it deal with $72 billion in debt. The court resisted, agreeing instead with a San Juan judge who threw out the statute in February.

The dispute centers on whether the island, which is excluded from federal bankruptcy code regarding municipal entities, can make its own rules for allowing public agencies to seek protection from creditors.

The commonwealth may seek a rehearing before the three- judge panel or a larger group of judges at the Boston-based court. It can also seek to be heard by the U.S. Supreme Court. Puerto Rico can also turn to Congress and request permission to put its agencies in bankruptcy, the appeals court said.

“In denying Puerto Rico the power to choose federal Chapter 9 relief, Congress has retained for itself the authority to decide which solution best navigates the gauntlet in Puerto Rico’s case,” the appeals court said in a majority decision on Monday. “We must respect Congress’s decision to retain this authority.”

No Choice?

Barring help from federal lawmakers, the decision means the debt-burdened Puerto Rico agencies will have no other choice except to continue piecemeal negotiations with creditors, a process which could lead to chaos if discussions break down and investors end up suing the agencies and each other to reclaim some of what they’re owed.

Puerto Rico securities have dropped in prices after Governor Alejandro Garcia Padilla last month said he would move toward restructuring the island’s debt. Commonwealth general obligations maturing July 2035 traded Monday at an average price of 70.6 cents on the dollar, after falling to 66.6 cents on the dollar June 30, a record low, according to data compiled by Bloomberg.

The case is Franklin California Tax-Free Trust v. Commonwealth of Puerto Rico, 15-1218, U.S. Court of Appeals for the First Circuit (Boston).

Written by Christie Smythe of Bloomberg 

(Source: MSN)

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