Good day and welcome to WSJ Pro Bankruptcy's Daily Briefing. It's Tuesday, September 20. Puerto Rico is exploring ways to change a landmark privatization deal for its electrical system, damaged by Hurricane Fiona and still mired in bankruptcy. A federal appeals court weighed Johnson & Johnson's Texas Two-Step for mass-tort liabilities. And Avaya became the latest downtrodden stock to find some bullish believers online.

Puerto Rico re-evaluates power grid fixes as debt talks collapse. Puerto Rican officials are re-examining a controversial deal to put private operators in charge of electricity service, people familiar with the matter said, as the island territory’s power system faces another costly reconstruction and renewed fights with investors.

Hurricane Fiona’s damage to the electrical grid in Puerto Rico puts new pressure on Luma Energy LLC, the private venture hired last year to take over energy distribution from the government’s bankrupt, mismanaged power authority.

The storm, which caused an islandwide blackout before even making landfall, comes at a perilous moment for Luma and the public officials who hired it, following a series of earlier outages, price hikes and missteps. Public support for the venture and its privatization of power service has been flagging for months, while Gov. Pedro Pierluisi and other officials who backed its hiring turn increasingly critical of its performance ahead of a November contract extension deadline.

Government officials have considered options for seeking concessions from Luma along with an extension, while making contingency plans for the possibility that the contract is canceled early or negotiations for an extension break down, people familiar with the matter said.

Fermín Fontanés, executive director of the Puerto Rico Public-Private Partnerships Authority, said Friday it is premature to entertain the possibility of renegotiating terms with Luma because no decision has been made about a possible extension of its contract.

• Most of Puerto Rico without power. Weather officials warned Puerto Rico could see landslides and mudslides amid life-threatening rain stemming from Hurricane Fiona and urged residents to move to higher ground. Downpours had produced unprecedented flooding in parts of the island, in some cases exceeding what they experienced during Hurricane Maria five years ago. Damage to infrastructure, urban areas and residences has been catastrophic, the governor said.

Judges probe J&J talc bankruptcy in high-stakes appeal. A federal appeals panel asked how personal-injury plaintiffs would be impacted if Johnson & Johnson was unable to move lawsuits over its talc-based products to chapter 11.

Third Circuit Judge Thomas Ambro, a noted bankruptcy jurist, questioned whether talc claimants are better off in bankruptcy court than they were before J&J moved 38,000 pending talc lawsuits into bankruptcy.

A talc injury lawyer denied Judge Ambro’s assertion, saying LTL’s chapter 11 case has put an indefinite hold on J&J’s potential settlement of individual cases, effectively delaying recoveries for people dying of cancer.

The consumer health giant used a Texas law to create a new subsidiary with minimal business operations, called LTL Management LLC, to carry the company's talc-related liabilities into bankruptcy. Throughout Monday's hearing, injury lawyers told the appeals panel that the biggest beneficiary of LTL’s chapter 11 case are J&J shareholders.

The appeals panel questioned if the timing of LTL’s filing supports the claimants' allegation that filing bankruptcy was J&J's way to gaining an unfair edge. The company's lawyer said any potential advantage is a byproduct of a chapter 11 case that was meant to equitably compensate injury claimants more quickly than they would likely be outside bankruptcy in the civil jury system.

• What's best for the claimants? One of the questions the Third Circuit had in mind was how the court system can help the talc claimants who sued LTL’s parent Johnson & Johnson, alleging that the company’s baby powder caused cancer. Because of LTL’s chapter 11 filing last year, those lawsuits have stalled. Some claimants have died while awaiting their days in court.
  
  “There're a lot of heartbreaking stories here. And it's very difficult to come up with the right game plan for everybody,” said Judge Julio Fuentes, one of the judges on the Third Circuit panel.
  
  “From your perspective, what would be the best approach?” the judge asked claimants' lawyer Jeffrey Lemken, who said they prefer the tort system over bankruptcy. As shown in Georgia-Pacific LLC’s Bestwall case, in which injury claims alone were placed under chapter 11 like in the LTL case, the bankruptcy court proceedings have gone on for five years without a chapter 11 plan, “without anybody getting compensated,” he said.
  
  Mr. Lamken told the judges that they shouldn’t be in the position to figure out which system — bankruptcy or the tort system — would be best for talc claimants.
  
  “I think that the answer is if you have a bankruptcy that has been structured to bypass the traditional bankruptcy protections, which is what you have here, that is not a good faith bankruptcy,” he said — Akiko Matsuda

Meme-stock traders embrace Avaya despite Wall Street fears. Individual investors are backing a new underdog, Avaya Holdings Corp., pumping up the software company’s downtrodden stock by about 200% over the past month and confounding Wall Street professionals.

Avaya share and bond prices reflect a high risk of bankruptcy, even after the recent rebound. Still, the willingness of individual investors to back the company while global markets tank shows the endurance of the meme-stock trend that fueled rallies for companies such as Bed Bath & Beyond Inc. and AMC Entertainment Holdings in early August.

Fed headed for another 0.75-point rate hike. The Federal Reserve is expected to approve its third consecutive interest rate increase of 0.75 percentage point on Wednesday, while signaling plans to raise and hold its benchmark rate above 4% in coming months to battle inflation.

Equally as important will be the signals Fed officials send about how much higher they expect to raise rates, and how fast they expect to do so, and what they expect the economic consequences to be. These will come through officials' new rate projections, to be released Wednesday.

• Jerome Powell’s inflation whisperer: Paul Volcker. Without explicitly predicting a recession, the Federal Reserve has made it clear it would tolerate a reversal in economic growth, much as it did during the 1980s, when punishing rate hikes drove the economy into a deep hole.
• Climbing housing costs could prop up inflation for a while. Economists expect housing inflation to strengthen further before cooling off in the coming months, but are unsure of when relief will appear.

Ecuador reaches deal with China to restructure debt. Ecuadorean President Guillermo Lasso said his country had reached a deal with China to restructure $4.4 billion of outstanding debt, saving the country $1 billion from 2022 to 2025.

Ecuador had been seeking a deal with China since February, when Mr. Lasso traveled to Beijing to meet President Xi Jinping. Economists said a deal to roll over the debt was key for Ecuador’s government, which faced large payments to China in the coming months while also grappling with growing demands at home for more public spending including for fuel subsidies.

Ecuador took on about $18 billion in loans from China, mainly from 2007 to 2017 under ex-president Rafael Correa, a leftist who often criticized U.S. foreign policy. Since Mr. Correa left office, the Chinese financing has come under increased scrutiny in Ecuador, which pledged its oil for repayment.

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