From Linkedin

By Michael L. Moskowitz and Melissa A. Guseynov

In an opinion dated February 6, 2017, the Bankruptcy Court for the Northern District of Ohio disallowed a mortgage servicer’s untimely proof of claim in a Chapter 13 case, holding that secured creditors are subject to the same 90-day deadline for filing proofs of claim as unsecured creditors. In re Dumbuya, 2017 WL 486917 (Bankr. N.D. Ohio Feb. 6, 2017). Read the full opinion here.

Francis and Patricia Dumbuya (“Debtors”) filed a petition for relief under chapter 13 of the Bankruptcy Code in September, 2015. Debtors listed a secured claim held by Ocwen Loan Servicing (“Ocwen”) in their petition. Ocwen was provided with notice of Debtors’ bankruptcy filing, but filed a proof of claim approximately nine months after the 90-day claims deadline expired. Debtors objected to Ocwen’s claim as time-barred.

Rule 3002(a) of the Federal Rules of Bankruptcy Procedure (“Bankruptcy Rules”) specifically requires unsecured creditors to file a proof of claim if they want to share in any distribution of estate assets. However, Rule 3002(a) does not mention secured creditors, only unsecured creditors and equity security holders. It is important to note that in a chapter 13 case, a secured creditor does not have to file a proof of claim. Failure to file a claim results only in a waiver of any unsecured deficiency claim. A secured creditor’s lien rights, however, pass through the bankruptcy unaffected, permitting them to enforce their lien against a debtor’s property post-bankruptcy. If a secured creditor wants to receive a distribution in a chapter 13 case, however, it must file a proof of claim.

Bankruptcy Judge Mary Ann Whipple noted in her opinion that courts disagree on whether the Rule 3002(a) deadline applies to secured creditors. Judge Whipple ultimately relied on the Seventh Circuit case, In re Pajian, 785 F.3d 1161 (7th Cir. 2015), which held that Rule 3002(a) applies to all creditors. The Court noted the “administrative complications and delays” that would occur if a residential mortgage holder failed to timely file a proof of claim in a chapter 13 case. Id. at 3. “Requiring all creditors to file claims by the same date allows the debtor to finalize a Chapter 13 plan without the concern that other creditors might swoop in at the last minute and upend a carefully constructed repayment schedule.” Id. (internal citation omitted).

In view of the above, it is essential for secured creditors to act promptly when a borrower files for bankruptcy protection. The filing of a bankruptcy petition under chapters 7, 11, and 13, triggers certain limitation periods which can significantly affect a creditor’s rights and claims. Thus, creditors should immediately consult with experienced bankruptcy counsel to ensure they comply with the requirements of the Bankruptcy Rules, as well as the Local Rules of the Bankruptcy Court where their case is venued.

Please feel free to call Weltman & Moskowitz with any bankruptcy questions or challenges you, your colleagues, or clients may have.

Puerto rico debt

From Bloomberg

Dealing with Puerto Rico’s crushing debt has started to resemble a circular firing squad.

Simply put, the bankrupt island can’t pay everything it owes, so creditors are taking aim at each other as they squabble over who will get what’s left. But the debt’s size and the tangled process invented to rescue Puerto Rico mean there’s no established rule book to shape what comes next.

Holders of general-obligation debt have declared their right to be paid first, owners of sales-tax bonds are squabbling with one another over who deserves priority, and they’re all up against the commonwealth’s leaders, who want the cash for essential services. Amid this melee, Puerto Rico’s federal overseers will have to choose between paying U.S. hedge funds everything they’re owed or keeping schools, water and electricity running.

“There just isn’t enough money,” said Matt Fabian, a partner with Municipal Market Analytics Inc. in Concord, Massachusetts, who foresees a chaotic brew of lawsuits, federal interventions and politics. “Nobody has any idea what’s going to happen.”

All told, Puerto Rico has about $74 billion in debt and $49 billion in pension liabilities. Hedge funds holding $1.4 billion of general-obligation bonds, including Aurelius Capital Management and Monarch Alternative Capital, have already sued to get overdue principal and interest. On the other side, owners of $17 billion in sales-tax bonds, including Tilden Park Capital Management and GoldenTree Asset Management, have entered the fray. They’ll meet for the first time in court on May 17 in San Juan.

Default Notice

The dispute over the sales-tax bonds, named Cofinas after the agency that issued them, began in earnest May 4. That’s when the trustee, Bank of New York Mellon Corp., sent a notice of default to the authority that sold the bonds. The object was to keep the government from diverting the sales-tax revenue to other purposes before it pays what it owes to investors.

The New York-based bank acted after weeks of pressure from senior bond owners who urged the trustee to safeguard their claims. In the process, junior bondholders were irked because the default notice could mean no payments for them until the senior bondholders are paid in full. The notice sets a 30-day deadline for a response from Puerto Rico, which is supposed to pay about $256 million of principal and interest on Aug. 1, according to data compiled by Bloomberg.

Puerto Rico’s status as a commonwealth means it’s not subject to traditional bankruptcy laws. Instead, the island filed for the next best thing to deflect claims, called Title III. It’s an in-court restructuring based on the U.S. bankruptcy code that was created under Puerto Rico’s Promesa law last year. But it’s never been used before, which means any cuts imposed by U.S. District Court Judge Laura Taylor Swain will be more likely to face years of appeals than a typical case.

Delayed Filing

Puerto Rico’s initial Title III filing on May 3 didn’t include Cofina. If it had, BNY Mellon may have been prohibited from sending its May 4 default notice. But the oversight and management board didn’t file its separate Title III action for Cofina until May 5, giving the bank a window to declare the default.

The delay means it’s unclear whether the Title III filing voids BNY Mellon’s default notice, as well as a separate default notice sent by Ambac Assurance Corp. on May 1. Regardless, BNY Mellon and senior creditors are prepared contest a court’s decision if it’s not in their favor, according to a person familiar with the matter, who asked not to be identified discussing private information. The government hasn’t said how it will respond.

“As a public policy, legal defense strategies are not discussed until they are presented in judicial forums,” Yennifer Alvarez, a spokeswoman for Governor Ricardo Rossello, wrote in an emailed comment.

The senior bondholder group, which controls about one-third of the senior Cofina bonds, is led by hedge funds Whitebox Advisors, Tilden Park Capital Management, GoldenTree Asset Management and Merced Capital, according to Susheel Kirpalani, a lawyer at Quinn Emanuel Urquhart & Sullivan who represents the group.

Debt Due

For investors, there’s a lot at stake. Cofina holders are owed more than $8 billion in debt service through 2026, with $704 million in payments due in the next fiscal year, which starts in July, according to the commonwealth’s fiscal plan.

The territory owes all bondholders $33.4 billion in debt payments between now and 2026, according to the plan, but it proposes to pay only about $8 billion. The government hasn’t said how bondholders should divide those payments, or which group is first in line.

“This is a government restructuring, not a court one, so the government will be in the driver’s seat,” Fabian said. “Creditors will not be heard to the extent they’re saying, ‘let’s do it a different way.’ Those arguments won’t have any standing in a court.”

Owners of junior Cofinas could be left vulnerable. BNY Mellon holds a trustee reserve fund of sales-tax revenue with about $400 million, more than enough to handle the upcoming August payment, according to people familiar with the matter.

But because of the default notice, junior bondholders are unlikely to be paid, in order to safeguard claims of the senior Cofinas, said the people, who asked not to be identified discussing private transactions. Given the limited funds available for debt repayment, there’s a chance the subordinated holders could get little or no recovery. A representative for BNY Mellon declined to comment.

What’s more, general-obligation bondholders claim that the entire Cofina structure violates the island’s constitution, and all the sales-tax revenue is owed to them. If the general-obligation claims are supported in court, all of the Cofina debt could be ruled invalid and investors could receive nothing at all.

Thousands gather on Ipanema Beach in Rio de Janeiro, Brazil. Photographer: Dado Galdieri/Bloomberg

From Bloomberg

Some of Brazil’s biggest debt investors are finding the best deals right now in overseas bonds from local companies.

JPMorgan Chase & Co. and JGP Gestao de Recursos Ltda. say that as clients seek out the least-risky corporate debt following the country’s worst recession in a century, local bonds have become overvalued. That’s increased the attractiveness of dollar-denominated notes from the same investment-grade companies, which often pay more when swapped back into reais and come with better legal protections and higher liquidity.

“What we really like is to buy offshore, dollar-market Brazilian corporate bonds,” Julio Callegari, the head of Brazil fixed income for JPMorgan Asset Management, said in an interview at Bloomberg’s offices in Sao Paulo.

Because foreign markets are deeper, it’s easier to buy large quantities of bonds without having an outsize effect on prices, according to Alexandre Muller, who oversees credit portfolios for JGP, one of the biggest independent asset managers in Brazil with 10 billion reais ($3.1 billion) in investments.

He cited notes from Banco Bradesco SA, the second-biggest Brazilian bank by market value, as a prime example of the better value offered on overseas securities. The company’s $1.1 billion of bonds due in 2022 yield 13.65 percent when the proceeds are swapped into reais, according to Muller’s calculations. That compares with a yield of 11.69 percent for riskier local notes from the bank that mature in December 2020.

The case for overseas debt is also being bolstered by Brazil’s moves to reduce interest rates as the U.S. embarks on a gradual increase. The Federal Reserve has raised borrowing costs twice since late last year, and traders are now pricing in an 80 percent chance of another increase in June and a 40 percent chance for a September hike, judging by the current effective fed funds rate and the forward overnight index swap rate.

Policy makers in Latin America’s largest economy have slashed the benchmark rate by 3 percentage points since late 2016 to 11.25 percent. Swaps traders are pricing a cut to 8.5 percent by the end of this year as the central bank tries to stoke growth after more than 3,500 companies filed for bankruptcy protection from January 2015 through April 2017.

“We had a flight-to-quality process,” Callegari said. “The whole industry moved as a mass to the high-grade corporate market, and everybody got out of high-yield debt.”

JPMorgan Asset Management, which overseas 25.8 billion reais in Brazil, closed its biggest Brazilian high-yield corporate credit fund with about 800 million reais earlier this year after withdrawals from investors. Its local corporate investment-grade debt fund has doubled in size over the past year to 2 billion reais.

“Corporate bonds issuance in Brazil is on the rise again, and high-grade companies have the option to access debt capital markets,” said Christian Egan, the head of global markets and treasury at Itau Unibanco Holding SA.

Local corporate bond sales total 15 billion reais this year, more than double the amount at the same point last year, according to data compiled by Bloomberg. Overseas corporate issuance totals $11.65 billion, more than six times the amount at the same time last year, the data show.

“The international corporate bond market is so attractive right now that our local premium credit fund has 80 percent of its total volume invested abroad and swapped to reais,” Muller said.


us supreme

From Mediat Bankry

The Facts of the Case

Here are the facts:

Spokeo, Inc., operates a “people search engine”: you can search its website for a person’s name and get information about him/her.

Spokeo posts a picture of Mr. Robins and reports him to be in his 50s, married, employed in a professional or technical field, with children, a graduate degree, a “Very Strong” economic status, and a wealth level in the “Top 10%.”

The truth, back then, is that Mr. Robins is out-of-work, without a family, and actively seeking employment. And the picture Spokeo posts is of someone else.  [Note: It’s sort-of like the play, “I’m Not Rappaport.”]

Mr. Robins’s class action lawsuit alleges violations of the Fair Credit Reporting Act [the “Act”]. His expressed concern in the lawsuit is that Spokeo’s report creates “imminent and ongoing actual harm” to his employment prospects by making him “appear overqualified for jobs he might have gained, expectant of a higher salary than employers would be willing to pay, and less mobile because of family responsibilities.”

The Standing Doctrine Issue

The issue in the case is whether Mr. Robins has “standing” to bring this action against Spokeo under the Act. The majority of Supreme Court justices (Alito, Roberts, Kennedy, Thomas, Breyer and Kagan) answer this question in the negative: Mr. Robins does NOT have standing because the alleged damage is not sufficiently “concrete.” Two justices (Ginsburg and Sotomayor) dissent.

A History / Civics Lesson on Standing: Private Rights v. Public Rights

What’s interesting about this case is the history / civics lesson on “standing” provided by Justice Thomas in his concurring opinion.  Here is a sampling from the history / civics lesson he provides:

The “standing” doctrine preserves separation of powers by preventing the judiciary’s entanglement in disputes that are primarily political in nature. This entanglement concern is generally absent from a lawsuit by an individual seeking to enforce only his/her personal rights against another private party.

Such a distinction between “primarily political rights” (aka “public rights”) and “personal rights” (aka “private rights”) comes from the common-law courts, which “more readily entertained” suits by private plaintiffs alleging a violation of their own rights over suits by private plaintiffs asserting “claims vindicating public rights.”

Private rights traditionally include “rights of personal security (including security of reputation), property rights, and contract rights.” In suits to enforce such rights, courts historically presumed that a plaintiff’s right to sue arises “merely from having his personal, legal rights invaded.” Here’s an example:

“when one man placed his foot on another’s property, the property owner needed to show nothing more to establish” standing-to-sue.

In such a private rights suit, courts historically presumed a plaintiff has standing “merely from having his personal legal rights invaded.”

As to private parties asserting “claims vindicating public rights,” however, common-law courts required “a further showing of injury.” Public rights are duties owed “to the whole community . . . in its social aggregate capacity.” These include “free navigation of waterways, passage on public highways, and general compliance with regulatory law.” Generally, “only the government has the authority to vindicate a harm to the public at large”: criminal laws are a prime example.

To achieve standing for enforcing public rights, common-law courts required “a further showing of injury”: the plaintiff had to show “some extraordinary damage, beyond the rest of the community.”

This is a separation-of-powers issue under the U.S. Constitution. By limiting the ability of Congress to delegate law enforcement authority to private plaintiffs and the courts, the standing doctrine preserves executive discretion.

Overlap With Bankruptcy Law

What’s interesting about the foregoing is its overlap with bankruptcy law. Every bankruptcy attorney will recognize this public rights v. private rights distinction: it’s from struggles, in judicial opinions, over the extent of (and limits on) bankruptcy jurisdiction under Articles I (bankruptcy courts) and III (district courts) of the U.S. Constitution. The rule is that private rights require resolution by an Article III judge, while public rights may be resolved by an Article I judge.

A Bankruptcy Problem

The private rights / public rights distinction seems to make a lot of sense in the “standing” doctrine context.

But it creates huge difficulties and confusion in the bankruptcy context. Consider this:

–The enforcement of contract rights has always been viewed, unequivocally, as a private rights issue: contract disputes must be resolved by an Article III court.

–The filing, objection and resolution of proof of claim issues in bankruptcy has always been viewed, unequivocally, as a public rights issue: this process can generally be handled—from start-to-finish—by an Article I bankruptcy court.

–But the vast majority of all proofs of claim filed in bankruptcy cases assert contract claims.

So . . . how do we justify that?!! And the claims filing and resolution process is one of the most-basic of all bankruptcy functions.

The answer is that courts have experienced great difficulty in articulating the private rights v. public rights justification and applying that justification consistently across the broad spectrum of bankruptcy issues.

puerto rico...

From Reuters

(Reuters) – Puerto Rico will begin its bankruptcy proceedings on May 17 in San Juan with a series of requests for managing the case as the commonwealth begins the process of restructuring its $70 billion in debt, according to court filing on Tuesday.

Puerto Rico’s federally appointed financial oversight board on May 3 filed the debt restructuring petition under Title III of last year’s U.S. Congressional rescue law known as PROMESA. While the initial filing was limited to obligations of the central government, it was still the largest-ever U.S. municipal bankruptcy, dwarfing that of Detroit.

Two days later, the oversight board sought bankruptcy protection for debt backed by sales tax revenues, known as COFINA.

The bankruptcy will be overseen by U.S. District Judge Laura Taylor Swain of the Southern District of New York, who was appointed by U.S. Chief Justice John Roberts.

The commonwealth has asked Swain to issue orders for case management, such as notifying its creditors and hiring a firm to manage claims, according to court filings.

Bankruptcy may not immediately change the day-to-day lives of Puerto Rico’s people, 45 percent of whom live in poverty, but it could lead to cuts in pensions and worker benefits and a reduction in health and education services.

The island’s economy has been in recession for nearly a decade, and has a current unemployment rate of about 11 percent.

Ericson Sucess

From Globe News Wire

PORTLAND, Ore., April 28, 2017 (GLOBE NEWSWIRE) — Erickson Incorporated, a leading global provider of aviation services, announced today it has successfully emerged from Chapter 11 bankruptcy protection. The company satisfied the conditions of its confirmed plan of reorganization, which became effective following approximately five months of negotiations and court proceedings.

President and CEO Jeff Roberts said, “We are very pleased to have completed our financial restructuring in such an efficient and timely manner. Chapter 11 allowed us to achieve rationalization of our aircraft fleet and delever our balance sheet by over $400 million in debt. We are exiting the restructuring process with significant available liquidity to fund the Company’s present and future business opportunities.” Mr. Roberts continued, “With a stronger financial foundation and reduced cost structure, we are well positioned under the new business model to fund our operations and to further develop and expand our business in order to better serve our customers and enhance value for all stakeholders for years to come.”

As provided in the plan of reorganization, the pre-petition first lien debt was satisfied in full and holders of the Company’s pre-petition second priority senior secured notes received new common stock in exchange for their claims.  The new ownership is comprised of a diverse shareholder group that includes former bondholders. The Company will move forward as a privately-held small business, effective immediately.

As previously announced, Erickson’s plan of reorganization was confirmed by order entered by the United States Bankruptcy Court for the Northern District of Texas on March 22, 2017.

Additional details and supplements regarding Erickson’s new capital structure and restructuring details can be found on the Company’s Chapter 11 restructuring website at

About Erickson

Erickson is a leading global provider of aviation services and operates, maintains and manufactures utility aircraft to safely transport and place people and cargo around the world.  The Company is self-reliant, multifaceted and operates in remote locations under challenging conditions specializing in Global Defense and Security, Manufacturing and MRO, and Civil Aviation Services (comprised of firefighting, HVAC, transmission line, construction, timber harvesting, oil and gas and specialty lift). With roots dating back to 1960, Erickson operates a fleet of over 50 aircraft, is headquartered in Portland, Oregon, USA, and operates in North America, South America, Europe, the Middle East, Africa, Asia Pacific, and Australia. For more information, please visit our website at


From Law 360

Law360, New York (April 16, 2010, 2:46 PM EDT) — A bankruptcy judge has approved Erickson Retirement Communities LLC’s reorganization plan that centers on the $365 million sale of all assets to investment firm Redwood Capital Investments LLC, allowing the company to exit bankruptcy after a little more than six months.

Redwood outbid private equity firm Kohlberg Kravis Roberts & Co. during an auction held in December. It agreed to buy all Erickson’s assets, on the condition that a consensual plan of reorganization be approved by creditors no later than April 30, according to lawyers from DLA Piper, which represented Erickson in its bankruptcy in the U.S. Bankruptcy Court for the Northern District of Texas.

“It’s highly unusual and remarkable that a complex bankruptcy of this scale was completed in such a tight time frame,” said Thomas Califano, vice chair of DLA Piper’s restructuring practice and attorney for Erickson.

Califano said getting through the bankruptcy process quickly was important to preserve the rights of the more than 22,000 residents of Erickson’s 19 retirement communities.

“The only way this would be done was by aggressively driving the process to a result,” he said.

Baltimore-based Erickson slid into Chapter 11 protection in October, noting that its plan to sell its assets to Redwood already had the support of the struggling company’s lenders.

Redwood is based in New York and is controlled by Baltimore businessman Jim Davis.

John Cusack, vice-chair of the DLA Piper finance practice, said Friday that the approved reorganization plan had poised Erickson for growth.

“With financing for the purchase and development of new senior living facilities still generally unavailable to its competitors, Erickson under Redwood Capital’s ownership will find itself in a unique position to grow based on several existing sites that are ready for development and expansion,” Cusack said.

Signs that trouble was afoot for Erickson became apparent in September when John C. Erickson, the company’s founder and executive chairman, sent a letter to residents in which he told them Erickson would be restructuring its debt.

He said the real estate side of the company’s business had been hit hard by the recession, and that it had to make commitments to banks about how quickly it could take on new residents.

In its October petition, Erickson listed more than $1 billion in liabilities, over $1 billion in assets and about 250 creditors.

Founded in 1983, Erickson bills its retirement communities as “the best financial and health decision people 62-plus can make.”

The company prides itself on its fully refundable entrance deposit, which it says protects residents’ equity, and a fee-for-service schedule that ensures residents only pay for services they want or need, “making the full range of housing and health services available to middle-income Americans.”

Erickson is represented by DLA Piper.

The case is In re: Erickson Retirement Communities LLC, case number 09-37010, in the U.S. Bankruptcy Court for the Northern District of Texas.

safe harbor

From Bloomberg

The U.S. Supreme Court agreed to hear a case that could make it easier for creditors to claw back cash that was paid out by a company before it went bankrupt.

Bankruptcy law offers a “safe harbor” to financial institutions that perform securities transactions. The provision was intended to protect trades from creditor claims, to promote stability in financial markets in the face of complicated corporate reorganizations. The justices are being asked to consider whether the shield should apply when a financial institution merely acted as a conduit for a transaction.

FTI Consulting Inc., the trustee of Valley View Downs LP, a casino and racetrack company that went bankrupt in 2009, contends that creditors are entitled to recover money paid for shares in rival Bedford Downs in 2007. Merit Management Group received $16.5 million in the transaction, which was carried out through Citizens Bank of Pennsylvania and Credit Suisse, according to court papers.

The trustee sued Merit, saying Valley View should get the money back because the company didn’t get equivalent value in exchange and was insolvent at the time of the deal. A district judge, invoking safe harbor, ruled that Merit could keep the money, but an appeals court reversed, saying the financial institutions involved in the trade were just conduits for the deal. Two federal appeals courts have reached the same conclusion, while five have gone the other way.

“This could be a another case where the outcome depends on whether a majority of the court is swayed by the plain language of the exception, regardless of the result, or whether the justices conclude that these types of privately-held stock sales, which use banks as payment conduits, do not fall within the ambit of the transactions Congress sought to protect,’’ Andrew Muller, a bankruptcy partner at law firm Stinson Leonard Street LLP, said in an interview Monday.

Tribune Dispute

A similar dispute involves noteholders in Tribune Co., the media company taken over in a $8.3 billion leveraged buyout in 2007. When it filed for bankruptcy the following year, the noteholders sued, saying the buyout was so ill-conceived as to leave Tribune unable to pay its debts and amounted to an intentional “fraudulent transfer” of assets.

Last year, a federal appeals court in New York threw out the case, citing the safe harbor provision. The Tribune creditors say safe harbor doesn’t apply, in part because they are trying to get money back from shareholders, not the banks that the shield was designed to protect and that merely delivered the cash brought in by the stock sale.

The Supreme Court Monday took no action on a pending appeal in the Tribune case. The court probably will hold that appeal until the justices resolve the FTI-Merit case.

The case is Merit Management Group v. FTI Consulting Inc., 16-784.

Flag of Puerto Rico

From Reuters

Puerto Rico announced a historic restructuring of its public debt on Wednesday, touching off what may be the biggest bankruptcy ever in the $3.8 trillion U.S. municipal bond market.

While it was not immediately clear just how much of Puerto Rico’s $70 billion of debt would be included in the bankruptcy filing, the case is sure to dwarf Detroit’s insolvency in 2013.

The move comes a day after several major creditors sued Puerto Rico over defaults its bonds.

Bankruptcy may not immediately change the day-to-day lives of Puerto Rico’s people, 45 percent of whom live in poverty, but it may lead to future cuts in pensions and worker benefits, and possibly a reduction in health and education services.

The island’s economy has been in recession for nearly 10 years, with an unemployment rate of about 11.0 percent, and the population has fallen by about 10 percent in the past decade.

The bankruptcy process will also give Puerto Rico the legal ability to impose drastic discounts on creditor recoveries, but could also spook investors and prolong the island’s lack of access to debt markets.


The debt restructuring petition was filed by Puerto Rico’s financial oversight board in the U.S. District Court in Puerto Rico on Wednesday, and was made under Title III of last year’s U.S. Congressional rescue law known as PROMESA.

The Title III provision allows for a court debt restructuring process akin to U.S. bankruptcy protection. Puerto Rico is barred from a traditional municipal bankruptcy protection under Chapter 9 of the U.S. code.

The filing includes only Puerto Rico’s central government, which owes some $18 billion in debt backed by the island’s constitution.

donald trump (1)

From FT

When Donald Trump arrived in the White House earlier this year, investors celebrated him as a “business” president. Mr Trump, after all, hails from the private sector and his team is filled with capitalists.

Indeed, Bridgewater, the hedge fund, calculates that the administration’s officials have 117 years of “C-suite” experience, more than any other presidency in living memory. Little wonder that the White House has embraced “business-friendly” policies, such as this week’s pledge to cut corporate tax from 35 per cent to 15 per cent. But as the presidency approaches its 100-day milestone, there is a crucial point that global observers need to remember if they want to make sense of the White House: “business” comes in different forms — and styles. While Mr Trump’s team of advisers has C-suite experience, they do not have the usual instincts of seasoned S&P 500 chief executives. Instead, their careers and cultural patterns have been shaped by the world of dealmaking and arbitrage. So if you want to understand their tactics — in relation to tax policy and much else — it pays to look at the cultural DNA of Wall Street’s distressed-debt players, not classic political science or Washington history books. When previous administrations recruited business wisdom, they typically turned to seasoned, mainstream corporate titans. Paul O’Neill, for example, was CEO of the mighty Alcoa group before he became treasury secretary under George W Bush. Hank Paulson ran Goldman Sachs before serving in the same role. But the current Treasury secretary, Steven Mnuchin, is different. Yes, he also worked at Goldman Sachs. But his biggest business success was implementing an aggressive buyout of IndyMac, the distressed American bank. Similarly, Gary Cohn, chief economic adviser, is also a Goldman alumnus. But unlike Mr Paulson, he did not get there by offering corporate clients advice on mergers or capital raising, but rose in the ultra-aggressive, arbitrage-driven world of commodities trading. Wilbur Ross, commerce secretary, created a private equity and distressed debt firm. So did Carl Icahn, an informal adviser who backed Mr Trump early in the campaign. Tom Barrack, another early Trump backer and influential adviser, is yet another private equity real estate investor. Indeed, the only top Trump official (or adviser) with classic experience of running a mainstream, gigantic corporate bureaucracy is Rex Tillerson: he led the mighty Exxon group before becoming secretary of state.

This distinction matters. Financiers who build their careers by handling distressed assets are trained to make high-risk, high-reward trades, particularly if they can control downside risk. They scorn bureaucratic process and focus on results. They will pivot and cut their losses if a deal goes sour. They embrace brinkmanship and will often be ultra-aggressive at the start of a bid, but later retreat to cut a deal. Above all, distressed-debt players are opportunistic, not ideological: they are constantly hunting for value in assets and trades that are mispriced or widely scorned. This mentality shaped how Mr Trump’s team emerged last year. After all, when men such as Mr Mnuchin first appeared on the stage next to Mr Trump, they were engaged in the political equivalent of a distressed asset trade: making a high-risk bet that had a potentially huge upside, precisely because it was widely scorned. This may also explain how men such as Messrs Cohn, Mnuchin, Ross — as well as Mr Trump — are behaving now. In the first 100 days of the presidency, the administration has issued numerous dramatic statements and threats, on issues ranging from Canadian timber imports to financial sector reform to corporate taxes. But the next 100 days could deliver almost as many dramatic pivots. This horrifies Beltway insiders. And it may end in disaster: there is a good chance nothing significant gets done this year because the team cannot actually cut any deals. In the world of distressed-debt trading or leveraged buyouts, it makes perfect tactical sense to start a bid by dispatching an aggressive one-page letter to your counterparts establishing goals. But that is not how legislation is executed in Washington. But before anybody writes off the Trump team, they should remember that for distressed-debt players opportunism, not ideology, rules. If it all goes wrong, they will simply cut their losses and return to Wall Street. Until then, expect more policy pivots, brinkmanship — and fireworks.