IN RE: THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, as representative of Puerto Rico Electric Power Authority (PREPA), Debtor.
AD HOC GROUP OF PREPA BONDHOLDERS; ASSURED GUARANTY CORPORATION; ASSURED GUARANTY MUNICIPAL CORPORATION; NATIONAL PUBLIC FINANCE GUARANTEE CORPORATION; SYNCORA GUARANTEE, INC., Movants, Appellants. THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, as representative of Puerto Rico Electric Power Authority (PREPA), Debtor, Appellee, FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO; PUERTO RICO FISCAL AGENCY AND FINANCIAL ADVISORY AUTHORITY, Objectors, Appellees,
FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF
PUERTO RICO [Hon. Laura Taylor Swain, U.S. District Judge]
J. Bienenstock, with whom Timothy W. Mungovan, Stephen L.
Ratner, Mark D. Harris, Chantel L. Febus, and Proskauer Rose
LLP were on brief, for appellee Financial Oversight and
Management Board for Puerto Rico as representative of Puerto
Rico Electric Power Authority.
Moers Mayer, with whom Amy Caton, Gregory A. Horowitz, Alice
J. Byowitz, Douglas Buckley, Kramer Levin Naftalis &
Frankel LLP, Manuel Fernández-Bared, Linette
Figueroa-Torres, Nayda Pérez-Román, and Toro
Colón Mullet P.S.C. were on brief, for appellants Ad
Hoc Group of PREPA Bondholders.
Heriberto Burgos Pérez, Ricardo F.
Casellas-Sánchez, Diana Pérez-Seda, Casellas
Alcover & Burgos P.S.C., Howard R. Hawkins, Mark C.
Ellenberg, Ellen Halstead, and Cadwalader, Wickersham &
Taft LLP, on brief for appellants Assured Guaranty Corp. and
Assured Guaranty Municipal Corp.
Gregory Silbert, Marcia Goldstein, Jonathan Polkes, Kelly
DiBlasi, Gabriel A. Morgan, Weil, Gotshal & Manges LLP,
Eric Pérez-Ochoa; Alexandra Casellas-Cabrera Lourdes;
Arroyo Portela, and Adsuar Muñiz Goyco Seda &
Pérez-Ochoa, P.S.C., on brief for appellant National
Public Finance Guarantee Corp.
A. Rodríguez-Vidal, Solymar Castillo-Morales, Goldman
Antonetti & Cordova, LLC, My Chi To, Elie J. Worenklein,
and Debevoise & Plimpton LLP, on brief for appellant
Syncora Guarantee, Inc.
Howard, Chief Judge, Kayatta, Circuit Judge, and Torresen,
Chief U.S. District Judge. [**]
KAYATTA, Circuit Judge.
consider again the application of PROMESA,  a statute
Congress enacted to address Puerto Rico's financial
crisis. In this instance, holders of revenue bonds issued by
the Puerto Rico Electric Power Authority, known as PREPA,
sought relief from a stay of actions against PREPA to
petition another court to place PREPA in receivership. The
district court concluded that PROMESA sections 305 and 306,
48 U.S.C. §§ 2165, 2166, precluded it from granting
such relief. For the following reasons, we conclude
otherwise. Whether the district court should in its
discretion grant the requested relief, and on what terms and
conditions, is a matter we leave to the able district court
to decide on remand in accordance with this opinion and based
on circumstances as they then exist.
III of PROMESA authorizes Puerto Rican governmental entities
(such as PREPA) to restructure their debts in a manner akin
to municipal debt restructuring under Chapter 9 of the
bankruptcy code. Compare 48 U.S.C. §§
2161-2177 with 11 U.S.C. §§ 901-946.
PROMESA also created the Financial Oversight and Management
Board (the "Oversight Board") and vested it with
powers to assist Puerto Rico and its instrumentalities in
achieving fiscal responsibility and accessing capital
markets. See 48 U.S.C. §§ 2121, 2141.
These powers include the authority to designate governmental
instrumentalities as eligible to petition for
court-supervised debt restructuring under Title III of
PROMESA and to act as the debtor's representative in such
proceedings. 48 U.S.C. §§ 2121(d), 2162, 2175(b).
With the Oversight Board's permission, PREPA filed for
bankruptcy under Title III of PROMESA on July 2, 2017. As is
customary in most types of bankruptcy proceedings, that
filing triggered an automatic stay of most actions by
creditors against PREPA. Id. § 2161(a)
(incorporating 11 U.S.C. § 362(a)).
to whom we will refer as "the bondholders," are
holders and insurers of debt issued by PREPA and governed by
a 1974 Trust Agreement. Under that Trust Agreement, PREPA
pledged to the bondholders its revenues to repay over time
the money PREPA acquired by issuing the bonds, plus interest.
On July 3, 2017, PREPA defaulted on its payments. The
bondholders accuse PREPA of breaching a promise to seek a
rate increase sufficient to cover debt payments, of failing
to collect on customer accounts, and of mismanaging
operations. For these reasons, the bondholders asked the
district court overseeing the Title III bankruptcy (the
"Title III court") for relief from the automatic
stay pursuant to 11 U.S.C. § 362(d)(1), incorporated
into PROMESA by 48 U.S.C. § 2161(a), so that they could
file suit to vindicate their right under territorial law to
have a receiver appointed to manage PREPA and seek a rate
increase sufficient to cover debt servicing. See
P.R. Laws Ann. tit. 22, § 207(a) (establishing right of
PREPA bondholders to a receiver in the event of default).
Title III court denied the bondholders' request for
relief from the automatic stay. It reasoned, first, that
PROMESA section 305 ("Section 305"), codified at 48
U.S.C. § 2165 and modeled after section 904 of the
municipal bankruptcy code, 11 U.S.C. § 904, prohibited
the Title III court "from transferring control of
PREPA's management and property to a receiver without the
Oversight Board's consent." Second, it concluded
that PROMESA section 306 ("Section 306"), codified
at 48 U.S.C. § 2166, which gives the Title III court
exclusive jurisdiction over the debtor's property, also
prevented it from "ced[ing] jurisdiction of PREPA's
property in the form of operating assets and revenues to
another court." Third, and in the alternative, the ...