First Circuit Rules Bankruptcy Code Preempts Puerto Rico's Recovery Act

On Monday, July 6, the Court of Appeals for the First Circuit affirmed the February 6, 2015 order and injunction of the Puerto Rico District Court and held that section 903(1) of the Bankruptcy Code preempts the Puerto Rico Debt Enforcement and Recovery Act (the "Recovery Act"). Franklin Cal. Tax Free Trust, et al. v. Commonwealth of Puerto Rico, et al., (1^st Cir. July 6, 2015) (Case No. 15-1218): On February 10, 2015, we reported on the district court's decision holding that the Recovery Act was unconstitutional.

As a result of amendments to the Bankruptcy Code in 1984, Puerto Rico, unlike states, may not authorize its municipalities, including its public utilities like PREPA or PRASA, to seek federal bankruptcy relief under chapter 9 of the Bankruptcy Code. In considering the appeal of the district court's order, the Court first confirmed that it had jurisdiction to consider the bondholders' claims of preemption, that those claims were ripe and that they had become ripe immediately upon adoption of the Recovery Act. The Court then ruled that the Commonwealth's effort to allow its public corporations to restructure their debt by enacting the Recovery Act is expressly preempted by the federal Bankruptcy Code. Rejecting the Commonwealth's arguments that the 1984 amendments made the preemption provisions of section 903(1) of the Bankruptcy Code inapplicable, the Court stated that "§ 903(1) has applied to Puerto Rico since the predecessor of that section's enactment in 1946. The statute does not currently read, nor does anything about the 1984 amendment suggest, that Puerto Rico is outside the reach of § 903(1)'s prohibition. Op. at 4. Because the Court affirmed the district court's order and injunction, the Court declined to consider the Commonwealth's appeal of the district court's order denying motions to dismiss the bondholders' Contracts Clause and Takings Claims. Op. at 21.

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Repurchase Action Against Natixis Real Estate Holdings, LLC Survives Motion to Dismiss

On July 1, Justice Marcy Friedman of the Supreme Court of New York for New York County denied Natixis Real Estate Holdings, LLC's ("Natixis") motion to dismiss a repurchase action brought by Wells Fargo Bank, N.A., and Computershare Trust Company, N.A. in their collective capacity as Securities Administrator for Natixis Real Estate Capital Trust 2007-HE2.  Consistent with her prior rulings in repurchase actions, held that the action was timely because the six-year statute of limitations for the claims only began to run on the execution date of the PSA, and not on the "as of" or effective date of the PSA.  The court also ruled that a timely repurchase demand was not a condition precedent under the PSA at issue and that the plaintiff had adequately alleged in its complaint that Natixis had discovered loans that breached representations; thus, the court held that plaintiff's failure to make a timely repurchase demand did not warrant dismissal of the action.

Justice Friedman further held that the Securities Administrator had standing to assert the repurchase action against Natixis on behalf of the Trust, rejecting the argument that only the Trustee could bring the suit, as the Securities Administrator's rights and duties are limited only to administrative tasks and not discretionary ones.  The court also dismissed the plaintiff's claims for rescissory and consequential damages and attorneys' fees, and struck the plaintiff's jury demand, without opposition.  Order.

EBA Issues Guidelines and Standards Under BRRD

Over the last week the EBA has published final draft regulatory technical standards (RTS), implementing standards (ITS) and guidelines on a number of Articles of the Bank Recovery and Resolution Directive (2014/59/EU) (BRRD). The materials published by the EBA include:

• final draft regulatory technical standards, implementing standards and guidelines relating to group financial support under Article 23;
• final draft implementing standards and guidelines relating to the application of simplified obligations under Article 4;
• final draft implementing technical standards on procedures, forms and templates for the provision of information for resolution plans under Article 11(3);
• final draft regulatory technical standards on the contractual recognition of write-down and conversion powers under Article 55(3);
• final draft regulatory technical standards on resolution colleges under Article 88(7);
• final draft regulatory technical standards on independent valuers under Article 36(14); and
• final draft regulatory technical standards on criteria to set the minimum requirement for own funds and eligible liabilities under Article 45.

The EBA has submitted the RTS and the ITS to the European Commission for endorsement. The guidelines will be translated into all EU languages and apply two months and one day after their publication in all EU languages.

European Parliament Adopts Non-Binding Resolution on Building a Capital Markets Union (CMU)

On July 9, 2015, the European Parliament announced its adoption of a non-binding resolution stating that the building blocks for a fully functional CMU should be in place no later than 2018. The Parliament calls on the European Commission to speed up its work on the action plan and put forward legislative and non-legislative proposals as soon as possible to achieve the objective of a fully integrated single EU capital market by the end of 2018.

EBA Opinion and Report on the Establishment of a European Framework for Qualifying Securitizations

The European Banking Authority (EBA) has published an Opinion and Report on the establishment of a European framework for qualifying securitizations.

The Opinion contains five recommendations for establishing of a European framework for qualifying securitizations including a need to:

• conduct a review of the entire regulatory framework for securitizations and other investment products;
• create a framework for qualifying securitizations; and
• establish criteria to define both qualifying term securitizations and qualifying asset-backed commercial paper (ABCP).

The Report proposes a more risk-sensitive approach to capital regulation for long-term securitization instruments, as well as for ABCP and illustrates how the capital charges set out in the recent revision of the Basel Committee on Banking Supervision 2014 securitization framework should be lowered to recognize the relatively lower risk of qualifying products, while at the same time maintaining restraints on regulatory capital.

Orrick Breakfast Briefing: BitLicense and the Virtual Currency Regulatory Landscape

What does the BitLicense require and how will the newly finalized New York State BitLicense regulations affect participants in the virtual currency space?  In addition to BitLicense, what regulatory requirements are being developed or imposed in other jurisdictions?  This program is meant to inform businesses, investors, entrepreneurs, lawyers and others on the state of virtual currency regulation. New York CLE credit will be offered.

Date: Monday, July 20
Location: Orrick's New York Office 

To register for this event, please click here​​.​​