The Specter of Puerto Rico’s Debt

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2:24Hello, and welcome to Money Talks from Slate Money, your guide to all things interesting in the world of business and finance. I am Felix Salmon of Bloomberg. And this week on Money Talks, a little show where we talk to the most interesting people in the world about the most interesting things in the world. I am going to be chatting with bankruptcy expert extraordinaire, Mr. David Skeel. David, welcome. Thank you so much, Felix. I'm looking forward to our conversation. So, David, first of all, who are you? Introduce yourself. Who am I and why am I here? Exactly. You introduced me pretty well. I'm a law professor.

3:06I just finished my 36th year of teaching law. I'm a bankruptcy specialist in particular. I teach at the University of Pennsylvania's law school. And for nearly eight years, I was on the Puerto Rico oversight board the last three and a half of those years as chair, which I suspect will be the most relevant detail to our conversation. And you were keeping notes this entire time. I was keeping notes. I was Keeping them in handwritten journals. I have about 1 ,500, 2 ,000 pages of notes. Which have now been condensed down into a hardback book available wherever books are sold. That is correct. Yes, it went from 2 ,000 pages to more or less 300 pages.

3:55And the name of the book is? Promise Land, The Inside Story of the Puerto Rico Debt Crisis. Now, all Slate Money listeners know, I think at this point, I am kind of obsessed with sovereign debt. Puerto Rico is not sovereign, but it's not not sovereign. It's kind of an interesting edge case. And it was huge. And the first thing we need to say is like, just to get this up front, Puerto Rico declared what was effectively bankruptcy. And I'm sure you're going to tell me that like technically it wasn't. But basically, it declared bankruptcy and is still kind of going through this long and painful process.

4:35And this was huge. If you add up all of the money owed by the government and by the electricity company and the unfunded pensions and stuff, I think it actually came to, what,$120 billion, something like that, like bigger than Argentina? True on both counts. So it was roughly$72,$74 billion of debt, roughly$55 billion of unfunded pensions. Argentina, I think, was about$100 billion. So it was bigger. Yeah, this was massive. And I feel like it didn't get quite the level of headlines that magnitude might suggest. At least in my world, Argentina got a lot more headlines than Puerto Rico did. So just in and of itself, it's an interesting story because it's so big.

5:22and also because it dragged on for so long. But you frame this in the book as not just a fascinating story in its own regard, but also as a sort of cautionary tale, I suppose. You're looking around a little tour of the horizon here, and you reckon that this is not going to be the last of these things. That's exactly right. I would say it's a cautionary tale in the sense of, if you watched this, if you read this book, don't let it happen to you. if you're Chicago or Illinois or even a number of sovereigns. And the other thing I would say is it really is a case study for future governmental crises.

6:04The next time there is a big governmental crisis in this country in particular, Congress is going to have the same set of options and they're going to be making the same kinds of decisions. And so basically what happened is it became obvious that Puerto Rico's debt was unsustainable. it was going to have to default. And then you go into quite a lot of detail of all of the back and forth in Congress and how Congress eventually allowed or passed a law that allowed Puerto Rico to do something very close to bankruptcy. And at one point, you called the act that came out of it called Promesa, hence the name of your book, a rare and vital illustration of a fully functional political process.

6:44So, and you don't mean that ironically, you actually think that like Congress kind of did the right thing here? I absolutely think they did the right thing. And that's one of the main reasons that I spent a chapter and a half of roughly a chapter book on the legislative history. It was it was a negotiated outcome. There were compromises made both by Democrats and by Republicans. In the end, it was overwhelmingly approved. It really was a remarkable process. And it all started with a promise that was made by Paul Ryan to Nancy Pelosi, which is another reason why the book is called Promise Land.

7:24So when you say that we should learn the lessons of Puerto Rico, and I think there are a lot of lessons to learn here, one of those lessons is past legislation, a lot like Promessa, that was good legislation. And when the next municipal bankruptcy happens or state bankruptcy happens, like that's a good model. Take that off the shelf. Does it change a couple of the names and bob's your angle? What I would say is go at it the way Congress went at it with ProMesa. I wouldn't necessarily say that this is a one-size-fits-all solution. It might be that your solution for a state or for a really big city looks a little different than this.

8:04One of the factors that played a big role with ProMesa is the awkward territorial relationships that Puerto Rico has to the United States. Folks in Congress were really worried about the colonialism dimension of imposing an oversight board on Puerto Rico. And so the board was weakened a little bit because of those colonialism concerns. You might not have the same concerns, you know, in another place. So what I would say is follow the process. A bipartisan bill where their compromises made by everybody is the way to go, probably ends up looking somewhat like promesa, not necessarily exactly like promesa.

8:45Does it end up like promesa being a very bespoke piece of legislation for the single entity that is going through this? Or would you recommend that Congress just passes some kind of a law that allows states to declare bankruptcy? Because right now, they can't. They can't. And I have been arguing for many years that they ought to be able to. In fact, you and I think have talked about this in the distant past, at least a little bit. I think you could pass a bankruptcy law independent of any crisis, ideally, and make it available for all the states in the same way that we have a bankruptcy law that's available for cities, chapter nine or municipal bankruptcy.

9:32Politically, I don't think it's realistic. The reality is we don't tend to get movement in Congress unless there's a big crisis. But if you were somehow to get movement in Congress, yes, I think you could very easily pass a quite simple state bankruptcy law. And so explain to me, because a lot of these conversations, and I have this conversation when it comes to the sovereign discussions as well, you open the book with the the then governor of Puerto Rico, Alejandro Garcia Padilla, sort of saying, I will never default. Default is never, it's not even an option. You are talking right now about how it would be basically impossible to get Congress to pass a law allowing states to default.

10:17There seems to be this sort of pretty deeply held conviction across the political spectrum that default is so unthinkable that it shouldn't even be allowed. Where does that conviction come from? It's a great question. I mean, you could answer it historically by saying, you know, that's where Alexander Hamilton started us by writing a brilliant missive about why you ought to repay your debt, why the US should repay its revolutionary era debt, why the state should repay the debt. So I think that's part of it. I think part of it also for the folks who would be affected Puerto Rico back in 2015 is there is a worry that if you have a bankruptcy option, you're not, you're going to be cut off from the market.

11:04You're not going to have an opportunity to borrow. And in fact, when Promesa was passed, the Virgin Islands was in trouble as they are now. And they were saying, please do not make promesa applicable to us. You know, we were in financial trouble, but we're going to try to pay our debt. And so I think there's part of that as well. There's a sense that you ought to repay your debt and that good things happen if you repay your debt. There's also a sense that if we even consider the possibility of bankruptcy, it will have bad effects. And there's also the interest group side, you know, bondholders are lobbying against any kind of bankruptcy option as well.

11:42So, yes. Is this empirically true, do you think? If Congress passed a law tomorrow saying that states could declare bankruptcy, would all of the state's borrowing costs go up overnight by some quantum? I think the answer to that is no. And there is some evidence of that with municipal bankruptcy. I think the answer is that states that are risky or that where their debt already is priced a little bit, the interest rate is already a little higher than other states, their borrowing costs would go up. But a state like Utah, for instance, I think it's, if anything, its borrowing costs might go down.

12:23I mean, it seems to me - Why would it go down? Explain that. It would go down because there'd be a separation between the states that seem like they might use bankruptcy in the states that clearly aren't using bankruptcy. It might not go down. But my intuition is that if you throw in a new variable like a bankruptcy option, you're going to have a bit more separation among the states between the ones that are perceived as risky and the ones that are perceived as not risky. And then the other thing you were talking about was the way that this legislation came about as a result of negotiations between the Democrats and Republicans in the persons of Paul Ryan and Nancy Pelosi.

13:07The board that you sat on had Republican appointees and Democratic appointees. And you talk quite a lot about the Republicans doing this and the Democrats doing that. Is it broadly fair to say to think about all of these restructurings and bankruptcies as Republicans wanting maximum recovery for creditors and Democrats wanting kind of the opposite sort of minimum recovery for creditors. If you are going to declare bankruptcy, then we want to be as harsh on creditors as possible so that we can free up as much cash for the taxpayers and for the people of the community. That was generally the divide going into ProMesa.

13:49And I think it is still generally true. So with ProMesa itself, Republicans were absolutely insistent on an oversight board because they thought an oversight board would tighten things up and would help to get the budget balanced. Democrats were absolutely insistent on the ability to restructure the debt. And so I think there is that kind of divide. And you see more or less the same thing in debates about state bankruptcy as well. I mean, the one thing they have in common, Republicans and Democrats, is they both hate the idea. The Democrats hate the idea because they're afraid that pensions will get affected in a bankruptcy.

14:29The Republicans hate the idea because they're afraid that bonds will get written down in a bankruptcy. And so this is obviously a reasonable fear. In the end, the people who held Puerto Rico bonds did see that did have to take a substantial haircut. And so it's reasonable to sort of say, well, yeah, Obviously, they wouldn't have wanted this legislation to pass because as soon as it did, it was inevitable that they were going to have to take some kind of a write down on their debt. Where does this sort of natural Republican constituency of like, what's the word, like sympathy for the bondholder come from?

15:04Is it just because the Republican Party is the party of rich people and bondholders of rich people? Or is it a little bit more principled than that? It's another great question because it's all gotten so complicated politically over the last 10 years or so. But historically, I think there was a sense that Republicans are a bit more attuned to the market and markets generally, bond market in particular. and most of the giving from bondholders went to Republicans rather than Democrats. It is more complicated now because the two parties don't look as different on that metric anymore. But that used to be that the Republicans were paying more attention to the market and the Democrats were paying more attention to unions and to folks like that.

15:53And then at one point, you say that once you declare bankruptcy, then there's the possibility of wiping out the debt entirely. And you call that possibility, quote, the illusory dream of the debt audit crowd. Why is it like once you've declared bankruptcy, like if I declare personal bankruptcy or if a highly distressed sovereign declares, decides to restructure its debt or whatever, like wiping out as much of the debt as possible, like doesn't seem to do any more harm to me than just a small, like most of the damage is done when I declare bankruptcy in the first place. Once I've declared bankruptcy, why would I not want to wipe out as much as possible?

16:33And why is that an illusory dream? Well, to get into the illusory dream, it has to do with a particular movement in Puerto Rico from the far left that was asking for a debt audit and what they wanted and what they still want, the movement still exists, is literally to wipe out the debt, as you just suggested. In reality, because we have property rights and other creditor protections in the US and in every American bankruptcy framework, you can't just wipe out the debt. If you have a creditor that has collateral, they're entitled to the value of their collateral. You can't just say they get zero.

17:14So once you've defaulted, once you've filed for bankruptcy, it is in the government's best interest, the debtor government's best interest to restructure the debt as much as they can. But you can't simply wipe it out. The idea that you could wipe it out was based on a belief or a dream or a wish that if we looked at where every dollar that Puerto Rico went, borrowed, went, what we would find out that lots of it was being funneled by corrupt leaders into Swiss bank accounts, like some corrupt nation somewhere elsewhere in the world. And then it would have been like odious debt or something like that.

17:58Exactly. And people who are behind the debt audit make that explicit comparison. They say that Puerto Rico's debt is odious. Puerto Rico's debt doesn't fit any definition of odious. Odious debt is not even an official international doctrine. It's more an idea than a doctrine. But there was kind of this dream that if we looked hard at the debt, we would find that the debt was all illegitimate and it all could literally be wiped out. The Oversight Board took a very close look at the debt. We spent a year studying the debt, deciding what debt could be challenged. It wasn't a full-on debt audit because we didn't trace where every dollar that was borrowed went.

18:43It was a very extensive review. And we did make a number of significant challenges to the debt. But it simply was unrealistic to think you could wipe the debt out. Now, you said that the government, once it's declared, once it's defaulted, does tend to want to restructure as much as possible to write down the debt as much as possible. Was that your stance on the oversight board as well? Were you trying to maximize the haircut to leave as much money as possible for Puerto Rico or not? I was concerned to restructure the debt enough so that Puerto Rico genuinely had a fresh start. under the bankruptcy laws.

19:23And I won't be as careful as you about saying that ProMESA is literally not bankruptcy because Congress didn't want to use the word bankruptcy because they were afraid it would sound too much like state bankruptcy. For the first couple of years I was on the board, I avoided the word bankruptcy. I said Title III, which is the formal title. I now just say bankruptcy. You know, under bankruptcy law, there's a certain amount of play you have. You don't have to pay creditors as much as you possibly could. You have to respect their rights. I guess you could try to restructure the debt as much as humanly possible.

20:03But if you do that, you're going to be freelancing in a sense. No, the creditors are not going, you're not going to make deals with any creditors. And you do have to make a deal with at least one class of creditors. There has to be at least one class that votes to favor your plan. So that in itself makes it unlikely that you're going to restructure the debt as much as humanly possible. But I did from the beginning think that this was a major crisis. Puerto Rico only had one shot at restructuring its debt, and we needed to make sure that we restructured it enough. So how did you do? What grade would you give yourself?

20:47I give us an A plus. No, we have to be graded on a curve, in my view, because there were so many disasters that hit between the time when we filed for bankruptcy, which was May 2017, and the time when the Commonwealth, the central government completed its bankruptcy, which was March 2022. In between, we had Hurricane Maria in 2017. We had a government scandal. Our governor got forced to resign in 2019. In 2020, we had earthquakes and also the pandemic. So when you take all of that into account, I think it was a very good restructuring. I couldn't realistically give us an A plus because that would seem a little too much like contemporary grading.

21:38But I would give us something in the A range. I mean, we ended up with a restructuring that everybody was happy with. The creditors were happy with it. The government was happy with it. The legislature was happy with it. There were elements of it that I didn't like, but overall, it was a very good restructuring in my view. There are two big sort of asterisks that we probably should talk about in this context. The first one is the fact that the restructuring is not over. This thing is still going on. The oversight board is still in place. And there's how much debt that is still not restructured?

22:17It's about 10 or 11 billion. It's basically the electricity company. The electricity company, the notorious Puerto Rican electricity company, Prepper. You explain in the book that you came this close to getting a restructuring done. And then through a miserable fluke of timing involving the First Circuit Court of Appeals, it all fell apart. So, yeah, I mean, I guess the first question is, like, to what degree is the failure to do PREPA a blot on your copybook? And when, if ever, can we expect PREPA to get done? Well, from the perspective of my book, the failure to get PREPA done is probably a good thing because it'll continue to generate interest in what's going on.

23:03From the perspective of our success as a board, the failure to complete the PREPA restructuring was the one really big disappointment. So there were 13 government entities whose debt needed to be restructured, the Commonwealth being the big one. Twelve of the restructurings are complete. PRAPA is the one that is not complete. The reason it didn't get finished in 2024, when we had a long trial, we had a two week trial defending the oversight board's proposed plan. The reason it didn't get confirmed, I believe, is, as you mentioned, that while the judge was deciding whether to confirm it or not, there was a lingering issue about the extent of the collateral that the bondholders were entitled to.

23:57And that issue ended up being decided the wrong way. And so it destroyed the restructuring. structuring. As far as the question why PREPA is still not done, whereas everything else is done, I think there are a couple reasons. PREPA has been getting worse and worse over the period of ProMESA, over the 10 years of ProMESA, to get a sense of just how bad it is, or you got a sense of just how bad it is if you watch the Super Bowl halftime show, where Bad Bunny had a staged to blackout just to send the signal about how bad PREPA is. The Commonwealth during its bankruptcy was getting better and better.

24:38They were getting disaster money. Revenues were coming in higher than had been anticipated earlier. And so there was an ability to make a deal with the creditors. PREPA has been the opposite. It's been getting worse and worse. There's less and less money available. The second reason PREPA is different is that a big hedge fund made a big bet, a billion dollar bet on PREPA, and they seem to have paid too much for the debt. And they have been an aggressive holdout for the last four years of the case, and they've managed to keep the other bondholders together. And so those two factors make PREPA really different and make it really hard to see what the resolution is going to be.

25:24I think it's going to continue to be litigated for a while.

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28:24So on one hand, so long as Prepper is in bankruptcy, which it has been for the best part of 10 years, it doesn't need to pay or it doesn't pay any coupons on its bonds. It doesn't really pay any interest on all of this debt load that it used to be suffering under. And therefore, one would imagine that its cash flows are a little bit better than they normally were, and it should be doing better. But as you say, it's not doing better. It's doing worse. Why is PREP performing so badly in bankruptcy? And is it reasonable to hope and assume that if it exits bankruptcy, then it might actually be able to do better than it's doing right now?

29:06So why is PREPA doing so badly? The short answer is that it had been allowed to deteriorate so far by the time PROMESA was enacted that it was really a basket case. even when Promesa got enacted. PREPA had done the kinds of things that some other utilities do. It had, instead of investing and keeping the infrastructure up, it had spent a lot of money on operational expenses, such as salaries. I have a chapter in the book where I talk about some of the details about how bad PREPA had gotten. So it was a mess back in 2016, 2017. Then Hurricane Maria hit in 2017, completely destroyed the grid. And in a sense, PREPA still hasn't recovered.

29:59A private operator was brought in in 2020 to manage the grid. Another private operator was brought in to manage the old generation plants. We, the oversight board, hoped that would lead to a prompt fixing and improving of PREPA, but unfortunately, it hasn't happened. And so will PREPA suddenly be doing better when the debt is being restructured? I mean, I think it'll be doing a little bit better. It's not good to be in bankruptcy for a number of reasons, but there's a lot that has to be done that's completely unrelated to the bankruptcy. And it's taking a long time. It's taken a long time to tap the federal money that is being directed to Puerto Rico to help rebuild the grid.

30:47So it is still a mess. The other aspect of this restructuring that got a lot of people upset is the sheer cost of it. You talk a little bit in the book about the complaints that the entire country was being run by McKinsey. But it's not, I mean, just on a sort of cash flow level, the cost of the oversight board and all of its consultants and its employees and everything, it's like over a billion dollars now, right? Well, the number that gets thrown around is$2 billion. But there are several things that can be said about that. One is the$2 billion or whatever it currently is, is not just the oversight board, it's everybody.

31:29So it's the oversight board's expenses. It's the government's expenses in the bankruptcy. The government has bankruptcy lawyers. The government has financial advisors. It's the creditors committee's expenses in the bankruptcy. So it's everybody's expenses. So to suggest that's all the oversight board is really misleading. That's the one thing I would say. The other thing I would say is any way you look at that money, it is money really well spent. So if we just look at the restructurings, the 12 restructurings that have been done so far have reduced$63 billion of debt to$27 billion of debt. If you look at the rate of return on your$2 billion for that reduction of$36 billion, I think my math isn't great, but it's something like a 3 ,300 % return.

32:26So$2 billion is a lot of money in the absolute. But when you look at what's been done to give Puerto Rico a fresh start, I think it's truly silly to be talking about those dollar amounts. Well, one of the arguments is that when you build up a payroll of the size that you did, people working for the oversight board directly, plus all of the consultants and lawyers and everyone who are working for the oversight board in one way or another, all of those people like getting paid and they don't like not getting paid. And if they get this thing done quickly, then they stop getting paid. And so is there not some weird perverse incentive going on here?

33:06One does worry about those kinds of incentives, that you'd rather your job be around longer rather than shorter. But what the board is doing that will, I think, counteract that is the board is trying to create capacity that can be offloaded into the Puerto Rico government. So as much as possible, it's not just the oversight board staff working in isolation. It's the oversight board working with the Puerto Rico Treasury and working with the Puerto Rico Department of Education. And so what hopefully will happen is those staff members who are currently working for the board, if they want, will be able to work for the government when the when the board is gone.

33:56So I don't think there's an institutional incentive to keep going. I think the board wants to finish its work and to move on. And my hope is that will be in the not distant future. The board just celebrated its 10th anniversary, just as ProMESA celebrated its 10th anniversary. I certainly hope that there's not a 20th anniversary to celebrate. I hope the board finishes its work. Is there any light at the end of the tunnel, though? Is there any reasonable hope that the prep stuff will get worked out? I think it has to get worked out. It's not going to get worked out in the next couple of months.

34:36Everybody realizes, I think, except maybe the holdout bondholders, that it's time to get this done. And so I think one of two things will happen. Either the litigation that is going on in the bankruptcy will get resolved, will have a ruling on exactly what the bondholders collateral is worth, and we'll have a restructuring plan. And realistically, that will be late in this year, I think, or early 2027. The other possibility is that bondholders will fire the board members and put in place board members who want to pay bondholders as much as possible. I don't think that will happen, but the bondholders tried to do it a year ago.

35:19And so, you know, it's certainly possible that they'll continue to try to do it. I mean, it's clearly messy. It is from reading your book and just like looking out at the various different states and cities out there. There is something that is going to happen again, maybe not with more than$100 billion, but it's going to happen again. There are going to be future bankruptcies. There is going to be future legislation surrounding this kind of thing. You gave yourself a pretty high letter grade, but in the context of a lot of bad luck along the way and tragedy along the way. If and when U.S. states start filing for bankruptcy, do you expect if those bankruptcies go half as well as Puerto Rico, would that be a good thing?

36:02Or is that like terrifying and you hope they go much better? Well, I would hope they didn't have the obstacles that Puerto Rico faced. I mean, when I say, you know, we deserve an A, it is taking into account those extraordinary catastrophes that slowed everything down. I would hope that if there were a bankruptcy option for a state and a state did use the bankruptcy option, that it wouldn't take five years or even longer in the case of crap, you know, that it'd be two or three years. And we know that can be done. Detroit obviously is an estate, and Detroit was much smaller than Puerto Rico, but that was done in a year and a half.

36:40And so it certainly is possible if you don't have extraordinary catastrophes on the way, that you can do it more quickly. And I think that would be the case. I would not expect a state bankruptcy to take as long as the Puerto Rico bankruptcy took. And when this happens, Like one of the sort of dogs not barking in your book, there's lots of talk about what happens in Congress where there are no representatives from Puerto Rico. There's lots of talk about what happened on the board and in the oversight board. And the actual population of Puerto Rico appears mainly as a sort of vast protesting mass who's generally unhappy with you, with the existence of the Oversight Board, with the acts of the Oversight Board, with the legislation that implements the Oversight Board in the first place, and so on and so forth.

37:31And there is something kind of undemocratic about the legislation, right? In terms of the sort of principle of nothing about us without us, like the Puerto Ricans in this supposed democracy don't seem to have had much of a say in anything. Would you agree with that? And do you think that's just inevitable? Is there any way of doing a bankruptcy where the actual people who live in that place get some meaningful say in the outcome? This is an issue in all governmental bankruptcies. Is there an appropriate role for the people of the city or the state or the territory or other government? It's a difficult issue, I think.

38:15I think there are ways to involve people in the bankruptcy. And the judge in our case did try to do that. She made a point both with the Commonwealth and with PREPA of creating an opportunity for ordinary citizens to speak and to raise their concerns and to make their suggestions. So I think that's good. I also do think it is inevitable that when you have this big of a governmental crisis, there are going to be some anti-democratic elements to the response. I mean, the oversight board was not unique to Puerto Rico. There were oversight boards in New York in the 1970s, in Washington, D.C. in the 1990s, emergency manager in Detroit in 2013.

39:02I think it is inevitable when the government is sufficiently dysfunctional that it simply cannot repay its debt. You're going to have a response that is going to interfere with democracy. And I think the choice you have to make really is how much do you interfere with democracy and what are the tradeoffs? So in in Promesa with Puerto Rico, there was a decision that completely usurping democracy was beyond the pale. That could not be done because of the colonialist history of Puerto Rico in America. And so the board's powers were a bit weaker than they were with Washington. The cost of that, in my view, is that the board can't do its work quite as quickly if democracy still has a full seat at the table.

39:53I think it was the right decision for Puerto Rico, but in another context, it may not. All of which is a kind of long-winded way of saying, I think it's important to involve people and ordinary people in the process to give them a chance to speak. I also think it's inevitable that you are going to interfere with democracy. And the goal should be to make that interference as effective and really as short-lived as possible. So finally, then, just explain to me, since obviously you were not an elected or even an unelected representative of the people, I'm still a little bit unclear who you were a representative of.

40:36like who who are you answerable to who you're accountable to that there was this one point in the book where you talk about you know a fight between one debtor entity and another debtor entity but you say that as the representative of its of kofina in its title three case we had a duty to fight for the kofina bondholders which kind of i wrote i raised my eye eyebrow at that Who were you fighting for insofar as there were two very clearly drawn sides here? What side were you on? So we were on the side of the entity that was in bankruptcy. So when the Commonwealth was in bankruptcy, our job was to be on the side of the Commonwealth.

41:20The thing that created the complexity that you just alluded to is the Commonwealth was in bankruptcy. At the same time, an entity called Cofina, which was an entity that had issued bonds backed by sales tax revenues, Cofina was in bankruptcy too. And so in the Commonwealth bankruptcy, our job was to represent the interests of the Commonwealth and the people of the Commonwealth. In the Cofina bankruptcy, our job was to represent the interests of Cofina. And really, the only constituency of Cofina was the bondholders of Cofina. Because we couldn't do both of those things at the same time, we appointed agents.

42:05We stepped back, basically, and appointed agents for each entity, an agent for the Commonwealth, an agent for the COFINA, and let them negotiate the fight between the two of them. So why was representing COFINA the same as representing its bondholders? Normally, the bondholders are on the other side of the table from the entity that issued the debt. Well, the bondholders ordinarily are one of many constituencies, and we do have to honor their rights and to some extent be concerned for their interests, if for no other reason, because Puerto Rico is going to want to borrow money in the future. The thing that made Coffina different is that there really wasn't any other constituency.

42:53Coffina was just a borrowing entity. It was just it issued bonds that really didn't have another constituency. The Commonwealth obviously was much more, much more complex. There were the bondholders, but there are also the government employees. There were the people of Puerto Rico who have an interest in the government. So the Commonwealth is a much, much more complex debtor. But even when you say that you're representing the Commonwealth, again, you think of the Commonwealth as being this very complex interplay of stakeholders. It's not just the people of Puerto Rico and what's best for them.

43:31It's like you want to balance a whole bunch of different interests here. That's right. Arguably, balancing those interests is what's best for the people of Puerto Rico. And we really were focused on the future for the people of Puerto Rico, the future economy. But I agree there are a number of different constituencies and you have to be mindful of all of them. You know, the government employees with their pensions and with their contracts, the various entities that make up the Commonwealth. So, yes, it is a complex mix of interests that go into a government. And then in the final analysis, you don't actually get to make the decisions, right?

44:14Ultimately, all you can do is present something to a judge and say, I hope you sign off on this. And then the judge will hear a bunch of objections from a bunch of bondholders who are like, this is terrible. And she will make her own decision. That is true. We do propose the restructuring, but we are dependent on the judge. And in Puerto Rico, in a real sense, we were also dependent on the government. So if the governor that was in place when we proposed a restructuring was adamantly opposed to the restructuring, the restructuring probably can't work because the governor is going to be the one that's going to have to implement it.

44:53And so we couldn't just march into court and say, this is what we're doing. We did have to be mindful of what we thought the judge would be willing to confirm. And we really had to have the governor on board as well. So we're not going at it alone, that's for sure. I just worry again, like it was hard enough in Puerto Rico. If it happens in other states, it's going to happen over and over again. And I feel like we've actually reached this point already with Prepper, but we could easily reach this point with state debts as well, that you just have a governor on the one hand, especially if it's faced with more conservative judges, that if you have a governor who's like, I am fighting for my people, I am not going to allow them to be burdened by all of this debt anymore.

45:41And I'm not going to find anything acceptable that doesn't reduce the debt significantly. And then you have a judge who's like, I believe in the state constitution and yada, yada, yada, and the bondholders get first dibs on everything. No matter how well-intentioned the oversight board, ultimately, the humans on the oversight board aren't going to be able to bridge that gap. And you're just going to wind up in sort of in Zookswung. There is a risk that that could happen. But another way of putting that risk is, you could end up right back where you started. The beauty of bankruptcy is it provides the possibility of finally resolving what everybody's entitled to.

46:25The problem with Argentina, from Argentina's perspective in the early 2000s, is they had no way to finally resolve what they owed the bondholders. Until the bondholders agreed to something, the bondholders couldn't be bound. Bankruptcy provides you a way to bind even holdout creditors, even creditors who wouldn't go along with the restructuring. It is possible it blows up because the governor sees one thing, the board sees another thing, the court sees another thing. But it's also possible that you reach a resolution that you wouldn't have been able to reach otherwise. And I think that possibility is worth the gamble.

47:04Which is why you're a bankruptcy lawyer. You believe in this. I sure am. That is why I'm a bankruptcy lawyer. I tend to think that bankruptcy is always the solution to whatever the problem is. We could talk about sovereign bankruptcy another time. I've argued for that in the past. I'm a little shakier on that now, but I still do believe in state bankruptcy. David Skill, thanks so much for coming on this show. It's been really great talking to you, and I hope your book does incredibly well. Thank you so much, Felix. It's always wonderful to see you and I appreciate you having me on. Thank you for coming on.

47:39Thanks for emailing us on sleepmoneyatsleep.com. And many thanks to Jessamyn Molly who produced this show. We will be back on Saturday with a regular Sleep Money.

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