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In re Financial Oversight and Management Board for Puerto Rico

United States Court of Appeals, First Circuit

July 31, 2019


          Before Howard, Chief Judge, Torruella, Lynch, Thompson, Kayatta, and Barron, [*] Circuit Judges.

          KAYATTA, Circuit Judge, with whom HOWARD, Chief Judge, TORRUELLA, Circuit Judge, and THOMPSON, Circuit Judge, join, statement on denial of rehearing en banc.


         The petition for rehearing having been denied by the panel of judges who decided the case, and the petition for rehearing en banc having been submitted to the active judges of this court and a majority of the judges not having voted that the case be heard en banc, it is ordered that the petition for rehearing and the petition for rehearing en banc be denied.

         The central issue in this case is whether the creditor-bondholders, without first obtaining permission from the Title III court, may commence a judicial proceeding against a Commonwealth debtor to obtain a court order restoring the flow of post-petition pledged special revenues from the debtor. Two panels of this court recently held that sections 922 and 928 of the municipal bankruptcy code do not afford creditors a shortcut to bypass the requirement of obtaining traditional stay relief in order to bring such an enforcement action. See Ambac Assurance Corp. v. Commonwealth of Puerto Rico (In re Fin. Oversight & Mgmt. Bd. for P.R.), 927 F.3d 597, 604-05 (1st Cir. 2019); Assured Guar. Corp. v. Fin. Oversight & Mgmt. Bd. for P.R. (In re Fin. Oversight & Mgmt. Bd. for P.R.), 919 F.3d 121, 127-32 (1st Cir. 2019). Because I believe that the dissent's objection to our denial of the creditors' petition for rehearing en banc is unsupported by the text of sections 922 and 928 and misconstrues the legislative context and history accompanying those provisions, I elaborate on my support for the panel's holding and for the denial of the petition.


         The creditors' desire to commence a proceeding without permission from the Title III court implicates section 362(a) of the bankruptcy code, which automatically stays a broad variety of creditor actions against the debtor or the debtor's property upon the debtor's filing of a bankruptcy petition. See generally 11 U.S.C. § 362(a). One of the creditor actions that section 362(a) stays is the "commencement . . . of a judicial . . . proceeding against the debtor that . . . could have been commenced before the commencement of the [bankruptcy] case . . . or to recover a claim against the debtor that arose before the commencement of the [bankruptcy] case." Id. § 362(a)(1). Under other subsections, the stay also applies to many creditor actions that fall short of commencing a judicial proceeding. These include, in relevant part, "any act . . . to exercise control over property of the [debtor]," id. § 362(a)(3); see also id. § 902(1) (stating that "property of the estate" when used in the municipal bankruptcy context "means property of the debtor"), "any act to . . . enforce any lien against property of the [debtor]," id. § 362(a)(4), "any act to . . . enforce against property of the debtor any lien to the extent that such lien secures a lien that arose before the commencement of the [bankruptcy] case," id. § 362(a)(5), and "any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the [bankruptcy] case," id. § 362(a)(6).

         The leading treatise on bankruptcy law recognizes the breadth of actions encompassed by the collective subsections of section 362(a), particularly in the municipal bankruptcy context. See 3 Collier on Bankruptcy ¶ 362.03 (Richard Levin & Henry J. Sommer eds. 16th ed. 2018) [hereinafter Collier] ("[I]nnocent conduct such as the cashing of checks received from account debtors of accounts assigned as security may be a technical violation [of section 362(a)(6)]."); id. ("[T]he stay applies to secured creditors in possession of collateral and to collateral in possession of a custodian."); see also 6 Collier, supra, ¶ 901.04 ("The applicability of section 362 to municipal debt adjustment cases is a continuation of prior law. However, the protection afforded by section 362 is substantially broader for the debtor . . . ."). The case law also acknowledges the breadth of creditor conduct stayed by section 362(a). See, e.g., Thompson v. Gen. Motors Corp., 566 F.3d 699, 703 (7th Cir. 2009) (holding that a secured creditor's passive retention of collateral after the filing of a bankruptcy petition violates section 362(a)(3)); Lex Claims, LLC v. Fin. Oversight & Mgmt. Bd., 853 F.3d 548, 551-52 (1st Cir. 2017) (citing Thompson with approval); Metromedia Fiber Network Servs. v. Lexent, Inc. (In re Metromedia Fiber Network, Inc.), 290 B.R. 487, 493 (Bankr. S.D.N.Y. 2003) (observing that a secured creditor's failure to remit collateral to the debtor constitutes an exercise of control over the debtor's property); In re Reed, 102 B.R. 243, 245 (Bankr. E.D. Okla. 1989) (noting that a secured creditor's sale of collateral in its possession violates the automatic stay provision).[1]

         More importantly, the drafters of what became section 922(d) expressed concern about the broad reach of the automatic stay as applied to what the municipal bankruptcy code labels "special revenues." See 11 U.S.C. § 902(2) (defining "special revenues"). Under many municipal bond arrangements, like those at issue in this case, the debtor turns over funds to a fiscal agent, or trustee, who then turns over the funds to the creditor, who in turn applies the funds to outstanding debt. But the breadth of the automatic stay poses a problem for this general scheme. As the Senate Report accompanying the 1988 amendments to the municipal bankruptcy code observes, "[t]he automatic stay of Bankruptcy Code Section 362 is extremely broad, preventing any post-petition collection activities against the debtor, including application of the debtor's funds held by a secured lender to secure indebtedness." S. Rep. No. 100-506, at 11 (1988) (emphasis added). New section 922(d), enacted in the wake of that Senate Report, addressed this concern directly. It states: "Notwithstanding [the automatic stay], a petition filed under this chapter does not operate as a stay of application of pledged special revenues in a manner consistent with section [928] of this title to payment of indebtedness secured by such revenues." 11 U.S.C. § 922(d).

         There is some ambiguity in the text of section 922(d). The passive syntax fails to indicate who (e.g., creditor, debtor, or fiscal agent) it is that the provision permits to apply pledged special revenues to the debt. And, I suppose, one might also wonder what exactly "application" means.

         To answer those questions, one might most easily look at that part of the Senate Report that specifically addresses section 922, quoted above. That portion of the Report expressly and unambiguously refers to the application of pledged special revenues already in the hands of the secured creditor. And, if one views the fiscal agent or trustee as an agent of the creditor in transmitting funds when due, one might find in section 922(d) permission for such a transfer by the fiscal agent as well. This latter view finds support in another portion of the Senate Report, which explicitly clarifies that section 922(d) makes the automatic stay inapplicable to the bond trustee's application of funds to the payment of outstanding debt. See S. Rep. No. 100-506, at 13 ("In this context, 'pledged revenues' includes funds in the possession of the bond trustee . . . ."). This reading would not somehow render section 922(d) superfluous or of no effect. Rather, it would clearly permit exactly what the Senate Report said Congress was concerned about in referring to the "application of the debtor's funds held by a secured lender to secure indebtedness." Id. at 11.

         The foregoing notwithstanding, the bondholders and the dissent point to this ambiguity in section 922(d) as license to hunt the legislative record for bigger game: a conclusion that section 922(d) was intended to allow creditors to commence, without prior permission from the Title III court, a judicial proceeding to secure a court order compelling the debtor to continue making payments in accordance with the bondholder resolutions after the filing of a Title III petition. I see two flaws in this hunt through the legislative record.

         First, its aim exceeds the license afforded by the relevant ambiguity in section 922(d). If a hypothetical statutory provision were deemed to be ambiguous because it refers to "motor vehicles operated on public roads," we might look to the pertinent legislative history to see if "electric bikes" were in mind when Congress drafted that provision. But we would not seize upon language in the legislative history to hold that "motor vehicles" includes "kayaks." See 14 Penn Plaza LLC v. Pyett, 556 U.S. 247, 259 n.6 (2009) ("[R]eading the legislative history in the manner suggested by respondents would create a direct conflict with the statutory text . . . . In such a contest, the text must prevail."); Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 568 (2005) ("Extrinsic materials have a role in statutory interpretation only to the extent they shed a reliable light on the enacting Legislature's understanding of otherwise ambiguous terms."). Similarly, while section 922(d) may be ambiguous as to who it allows to apply funds, it is clear that it only grants permission to act; i.e., it allows some actor to apply funds "notwithstanding" the automatic stay. 11 U.S.C. § 922(d). Nothing in the language remotely suggests that it compels anyone to make such an application. So, if, as the dissent maintains, this case is really about "whether a debtor . . . must continue to pay pledged special revenues," nothing in the permission granted by section 922(d) could possibly provide an answer that helps the bondholders.[2]

         Second, whatever "application" may mean, it cannot reasonably be read as "commencing a judicial proceeding" to compel payment. The dissent points to two contemporaneous dictionary definitions of the term "application" to demonstrate the term's ambiguity. But even the dissent's proffered definition of "application" -- "[a]ppropriation of a payment to some particular debt," Application, Black's Law Dictionary (6th ed. 1990) -- could not reasonably encompass the instigation of an enforcement action against a debtor.

         As subsection (a)(1) of the automatic stay provision demonstrates, Congress knew how to refer to the filing of a lawsuit against a debtor, and it did so in straightforward terms in that instance. See 11 U.S.C. § 362(a)(1) (staying "the commencement or continuation . . . of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the [bankruptcy] case"). Had Congress wanted to exempt from the stay a creditor's judicial action to enforce the terms of a bondholder agreement, it would have been exceedingly easy to do so by invoking the language used in subsection (a)(1). See Lozano v. Montoya Alvarez, 572 U.S. 1, 16 (2014) (observing that when the drafters of legislation did not use "obvious alternative" language, "the natural implication is that they did not intend" that alternative). But Congress did not do so. Further, if one looks at all seven subsections of section 362(a) and asks which one covers the "application" of funds to a debt, one would never pick subsection (1). It reasonably follows that 922(d) leaves that subsection undisturbed.

         Nor does section 922(d)'s reference to section 928 require a contrary result. Section 922(d) commands that "application of pledged special revenues" be done in a manner "consistent" with section 928 -- which in turn provides that liens on special revenues "shall be subject to the necessary operating expenses" of the project or system. See 11 U.S.C. §§ 922(d), 928(b). The dissent contends that this cross-reference to 928(b) means that "application" must refer to something more than funds already in the hands of a creditor. Not so. In a non-municipal bankruptcy proceeding, a bankrupt debtor (or its trustee) can move the bankruptcy court to compel a third party in possession of estate property to turn over that property to the debtor. See 11 U.S.C. § 542. Similarly, in the municipal bankruptcy context, the Senate Report makes evident that the bankruptcy court "retain[s] the power to enjoin application of proceeds . . . upon a specific showing of need, for example, where a secured creditor was about to apply proceeds of a gross revenue pledge in a manner inconsistent with policies of the proposed new section." S. Rep. No. 100-506, at 11; see also 6 Collier, supra, ¶ 922.05 n.22 ("[T]he bankruptcy court has ample authority under its general equitable powers to accomplish what the statute appears to contemplate, namely, use of pledged special revenues when necessary for the continued operation of the project or system from which the revenues are derived."). Thus, in ordinary course, section 922(d) enables a creditor to apply pledged special revenues in its possession to outstanding debt unless the Title III or bankruptcy court enjoins the creditor from doing so upon a showing by the debtor of a need to pay necessary operating expenses.


         The creditors and the dissent also suggest that section 928(a) of the municipal bankruptcy code might be read to accomplish what section 922(d) clearly does not. But section 928(a) bears no relevant ambiguity. It simply means what it says: The provision orders that "special revenues acquired by the debtor after the commencement of the case shall remain subject to any lien resulting from any security agreement entered into by the debtor before the commencement of the case." 11 U.S.C. § 928(a). In other words, post-petition pledged special revenues are still subject to the pre-petition lien created by the bondholder agreements despite the filing of a bankruptcy petition. Contrary to the dissent's view, section 928(a) suggests nothing about the enforcement of a creditor's lien on pledged special revenues. It merely preserves a secured creditor's right to those post-petition funds throughout the bankruptcy proceeding, and the creditor can then assert its right to those funds during the plan-of-adjustment confirmation phase, see generally 11 U.S.C. § 943(a) (granting standing to object to a plan of adjustment to "special tax payer[s]"); id. § 902(3) (defining "special tax payer"); 6 Collier, supra, ¶ 943.02 (explaining that "creditors whose claims are affected by the plan of adjustment" have standing to object), or earlier by requesting stay relief "for cause," such as "the lack of adequate protection" of that collateral, 11 U.S.C. § 362(d)(1). Nor does subsection 928(b) -- which, again, provides that "any such lien on special revenues . . . derived from a project or system shall be subject to the necessary operating expenses of such project or system," id. § 928(b) -- compel a different reading. That subsection merely limits the pool of post-petition funds to which a creditor has an interest; in practical terms, this means a creditor cannot object -- through a request for stay relief or at the plan-confirmation phase -- to the debtor's use of post-petition pledged special revenues for "necessary operating expenses."

         The Senate Report accompanying the 1988 amendments makes this explicit. As that Report explains, "[new] Section [928], along with the definition of special revenues in Section 902(3), protects the lien on revenues. . . . It is intended to negate Section 552(a) in the municipal context and to go no further. In other words, it is not intended to create new rights . . . ." S. Rep. No. 100-506, at 12 (emphasis added). Section 552(a) of the bankruptcy code, incorporated from the non-municipal context, provides that "property acquired . . . by the debtor after the commencement of [bankruptcy] is not subject to any lien resulting from any security agreement entered into by the debtor before the commencement of the case." 11 U.S.C. § 552(a). As the Senate Report explains, this provision created a slew of potential problems in the municipal context. Among those problems included the termination of creditors' security interests in future special revenues. This, in turn, made it possible that (1) revenue bonds would be converted into general obligation debt upon the filing of bankruptcy; (2) future streams of special revenues would be made accessible to general creditors; (3) municipal debt limits would be exceeded; and (4) municipalities that elected to continue paying bondholders would face difficulty in obtaining plan confirmation. See S. Rep. No. 100-506, at 5-9. As the Senate Report makes evident, section 928(a) simply reverses the problems created by section 552, but it does nothing more.


         The foregoing should be enough to end the debate. The ambiguity of the statutory text is simply not broad enough to allow one to read these sections as allowing the bondholders to commence a collection action without first obtaining leave of court. In resisting this conclusion, the dissent and the creditors also commit the further error of badly misconstruing the context and legislative history accompanying the 1988 amendments in support of their reading of sections 922(d) and 928(a).

         As evidence that these provisions should be read to allow a creditor to bring a post-petition enforcement action against a debtor to enforce the terms of a bondholder agreement, the dissent points to one portion of the Senate Report that reads: "[T]he amendments insure that revenue bondholders receive the benefit of their bargain with the municipal issuer, namely, they will have unimpaired rights to the project revenue pledged to them." Id. at 12. When read in context, however, it is apparent that this statement was made in reference to the new section 928(a) and its elimination of the problems created by section 552 of the bankruptcy code, discussed above. See id. As I have already explained, section 928(a) does ensure that creditors receive the benefit of their bargain by securing their liens on future streams of pledged special revenues (and their right to protect their property interests in those revenues at the appropriate time and through the appropriate channels) despite the debtor's bankruptcy filing. Of course, it is true that a debtor's decision to discontinue making payments and to divert its revenues elsewhere might impair the security created by such liens. The risk that a debtor will misuse collateral exists in every bankruptcy case, municipal or otherwise. But that possibility gives us no license to rewrite section 922(d) to authorize the commencement of a judicial proceeding against the debtor without leave of the Title III or bankruptcy court. Rather, in such an event, the statute and the case law direct the creditor to seek and obtain relief from the stay to protect its interests. See 11 U.S.C. § 362(d); infra Part IV.

         The dissent also points to the Senate Report's assertion that the "[r]easonable assurance of timely payment is essential to the orderly marketing of municipal bonds and notes and continued municipal financing." S. Rep. No. 100-506, at 21. Unlike the previous quote, this excerpt does refer to the new section 922(d). But in reading this passage to suggest that section 922(d) mandates the continued payment of pledged special revenues or to allow an enforcement action to achieve the same end, the dissent ignores the Senate's use of the qualifier "reasonable" before "assurance." More importantly, it ignores the larger context in which Congress passed the 1988 amendments. Both the Senate and House Reports note examples of municipalities electing to continue making payments to bondholders after filing for bankruptcy --despite the practical difficulties created by section 552 of the bankruptcy code discussed above --to ensure their creditworthiness. See id. at 6 (providing examples, including the San Jose School District and Medley, Florida); H.R. Rep. No. 100-1011, at 3 (1988) (discussing the San Jose School District); see also S. Rep. No. 100-506, at 25 ("[S]ection 552 may prevent troubled municipalities from giving the kind of assurances that are necessary for continued financing."). Along with section 928(a), section 922(d) facilitates voluntary payments from a municipal debtor -- and therefore a municipality's ability to give "reasonable assurance of timely payment" -- to a creditor by allowing a creditor in receipt of pledged special revenues to apply those revenues to outstanding debt.

         The Reports' references to "payments," S. Rep. No. 100-506, at 13; H.R. Rep. No. 100-1011, at 7, and the Senate Report's subsequent statement that "[w]here a pledge of revenues survives under Section [928], it would be needlessly disruptive to financial markets for the effectuation of the pledge to be frustrated by an automatic stay," S. Rep. No. 100-506, at 21, must be understood in a similar light. And the dissent ignores the immediately succeeding sentence from the Senate Report, which states: "Further, the use of an automatic stay may be contrary to Section 904 and interfere with the government, affairs and the municipality's use or enjoyment of income producing property." Id. at 21. The reference to section 904 of the municipal bankruptcy code would make no sense under the preferred interpretation of section 922 tendered by the bondholders and the dissent.


         I add three brief final thoughts. First, I note that the dissent's arguments regarding section 305 of PROMESA are adequately addressed in our recent opinion in Ambac Assurance Corp., 927 F.3d at 602-05. I do not rehash those arguments here.

         Second, stay relief under section 362(d) of the bankruptcy code is not the paper tiger that the dissent makes it out to be. That section affords the bankruptcy or Title III court no discretion to decline a request for stay relief upon a showing of a "lack of adequate protection of an interest in property." See 11 U.S.C. § 362(d)(1) (stating that a bankruptcy court "shall grant relief from the stay" for "lack of adequate protection of an interest in property" (emphasis added)); see generally Fin. Oversight & Mgmt. Bd. for P.R. v. Ad Hoc Group of PREPA Bondholders (In re Fin. Oversight & Mgmt. Bd. for P.R.), 899 F.3d 13, 20 (1st Cir. 2018) ("[S]ection 362(d)(1) guards against the possibility that the automatic stay could deprive a creditor of its property interest by precluding the creditor from exercising any rights it possesses to protect that interest from destruction.").

         Finally, I note that the application of the automatic stay provision to the bondholders' claims against the Commonwealth raises no new issues of constitutional dimension that would warrant a different reading of sections 922 and 928. Courts, including the U.S. Supreme Court, have time and again affirmed the constitutionality of section 362 of the bankruptcy code against Fifth Amendment Takings Clause claims. See, e.g., Wright v. Union Cent. Life Ins. Co., 311 U.S. 273, 278 (1940) ("Safeguards were provided to protect the rights of secured creditors, throughout the proceedings, to the extent of the value of the property. There is no constitutional claim of the creditor to more than that." (citations omitted)); United Sav. Ass'ns of Tex. v. Timbers of Inwood Forest Assocs., Ltd. (In re Timbers of Inwood Forest Assocs., Ltd.), 793 F.2d 1380, 1390 (5th Cir. 1986) ("In general, the Fifth Amendment requires only that the value of the secured position of a creditor be maintained during the stay."); Lend Lease v. Briggs Transp. Co. (In re Briggs Transp. Co.), 780 F.2d 1339, 1342 (8th Cir. 1985) ("The bankruptcy code's automatic stay . . . causes only a temporary delay of a creditor's right to enforce its lien on the collateral. . . . [The] suspension of the right to enforce a lien is within Congress's constitutional bankruptcy powers." (citations omitted)).

         And as for the dissent's invocation of the Tenth Amendment, the Supreme Court --more than eighty years ago and before section 922(d) even existed -- upheld the municipal bankruptcy code against such an attack. See United States v. Bekins, 304 U.S. 27, 51-52 (1938) ("The statute is carefully drawn so as not to impinge upon the sovereignty of the State. The State retains control of its fiscal affairs.").


         For the above-stated reasons, I support the denial of the creditors' petition for rehearing en banc.

         Dissenting Opinion Follows

          LYNCH, Circuit Judge, dissenting from the denial of rehearing en banc.

         With the greatest respect for my colleagues, I dissent. I have grave doubts about the panel's holding and the analysis of both the panel and the concurrence as to the denial of en banc, and I believe that further review is warranted, if not by this court, then by the Supreme Court. At its core, this case is about whether, under municipal bankruptcy law, the government debtor must continue to pay pledged special revenues to special revenue bondholders during a bankruptcy proceeding (or, put another way, whether a debtor can elect not to pay, and order a fiscal agent not to pay, special revenue bondholders despite the indenture). This issue is of extraordinary importance: it goes well beyond the Title III proceedings in the Commonwealth as to both potential municipal and state defaults, affects special revenue bonds nationwide, and has Constitutional implications.

         The petitioners are insurers ("the Insurers") of Puerto Rico Highway and Transportation Authority ("PRHTA") special revenue bonds secured by liens on pledged special revenues. They allege the Commonwealth has diverted these special revenues to uses not authorized by the terms of the bonds. Specifically, the Commonwealth stopped the making of payments from the reserve accounts associated with the bonds, taking the position that automatic stay provisions incorporated from the Bankruptcy Code into the Puerto Rico Oversight, Management, and Economic Stability Act ("PROMESA") barred such special revenue payments. The Commonwealth, by legislation, also ordered the fiscal agent for the special revenue bonds, the Bank of New York Mellon, "to halt payments to [PR]HTA bondholders."[3] Ambac Assurance Corp. v. Puerto Rico (In re Fin. Oversight & Mgmt. Bd. for P.R.), 927 F.3d 597, 601 (1st Cir. 2019). The petitioners sought relief, alleging that: under several provisions of the Bankruptcy Code, see 11 U.S.C. §§ 922(d), 928, and U.S. Constitutional requirements, the filing of the Title III petition does not operate as a stay against the application of pledged special revenues to these special revenue bondholders; such payments are required during the pendency of the Title III proceeding; and the Commonwealth's actions effectively have nullified their ability to collect the pledged revenues. It is estimated that the sums at issue are about $2.6 billion of the $4.5 billion in outstanding PRHTA bonds.

         The panel opinion, from which further review is sought, holds that under Sections 362, 922(d), and 928 of the Bankruptcy Code, mandatory payments to PRHTA special revenue bondholders from the reserve accounts, and actions by those bondholders or insurers to enforce their liens on such revenues, are automatically stayed. Assured Guaranty Corp. v. Fin. Oversight & Mgmt. Bd. for P.R. (In re Fin. Oversight & Mgmt. Bd. for P.R.), 919 F.3d 121, 132-33 (1st Cir. 2019). As a result, during the Title III proceeding, these bondholders cannot receive payment of special revenues promised to them at issuance unless the Commonwealth voluntarily makes such payment.[4] Id. One other option, which is not discussed by the opinion, is for the special revenue bondholders (or the subrogated insurers) to petition the district court to lift the stay as to their interests; in my view, it is not likely that Congress intended to impose such a burden on those bondholders, preferring instead to make the automatic stay inapplicable to start with.

         I disagree with the panel opinion that the statutory exceptions to the stay are limited to giving the debtor the voluntary option of payment and disagree that the text is unambiguous. Any interpretation of the text of Section 922(d) and Section 928 of the Bankruptcy Code[5] requires resort to both context and legislative history. That required analysis supports the Insurers' position: because payment of the special revenues pursuant to the relevant bond resolution(s) is mandatory during the bankruptcy proceeding (after deducting "necessary operating expenses" per Section 928(b)), bondholders can bring an action to enforce their liens if necessary without first having to seek relief from the automatic stay. The panel opinion, which stints on the analysis required by rules of construction, also conflicts with the persuasive view in In re Jefferson County, 474 B.R. 228 (Bankr. N.D. Ala. 2012), that "[t]he structure and intent of what Congress enacted by its 1988 amendments to chapter 9 [of the Bankruptcy Code] was to provide a mechanism whereby the pledged special revenues would continue to be paid uninterrupted," id. at 274.

         My understanding of the statutes essentially preserves the status quo before the filing, and the benefit of the bargain between the issuer and bondholder, as to these special revenues; provides assurance for the massive and important municipal bond market; and supports the operation of local governments. Nothing in substantive municipal bankruptcy law excuses the debtor or any of its intermediaries from continued payment of special revenues, and the automatic stay does not apply to these special revenues due to the exceptions created by Sections 922 and 928.


         The procedural history and basic facts of this case are ably described in the panel opinion. See Assured Guaranty, 919 F.3d at 124-27. Before explaining why I disagree with the panel's analysis, however, some background on the statutory arrangement is necessary.

         Title III of PROMESA incorporates by reference numerous provisions from the Bankruptcy Code. See 48 U.S.C. § 2161. These include the automatic stay provisions at 11 U.S.C. §§ 362(a)[6] and 922 (and the express exceptions in those provisions), and the provision regarding the "[p]ost petition effect of security interest" at 11 U.S.C. § 928.

         Importantly, Section 922(d) and Section 928 were added to the Bankruptcy Code as part of the 1988 amendments to Chapter 9 of the Bankruptcy Code, to solve certain problems created by prior law in the area of municipal bankruptcy. See Pub. L. No. 100-597, 102 Stat. 3028, 3029 (codified at scattered sections of 11 U.S.C.). Here, I identify certain problems Congress was trying to solve, in the municipal bond market and in municipal bankruptcy, by enacting the 1988 amendments.

         Before the 1988 amendments, concerns had been brought to Congress about the Bankruptcy Code's application to municipal bankruptcy, and the problems that prior amendments had caused. Chapter 9, which addresses municipal bankruptcy, had been substantially amended in 1976. See Act to Amend Chapter IX of the Bankruptcy Act, Pub. L. No. 94-260, 90 Stat. 315 (1976). It was amended again in 1978. See The Bankruptcy Reform Act of 1978, Pub. L. No. 95- 598, 92 Stat. 2549. The latter revision problematically incorporated by reference a number of concepts from the law of corporate bankruptcy into municipal bankruptcy law.[7] Id. § 901(a); 92 Stat. at 2621.

         In making the revisions ten years later, Congress stated, "[b]ecause the worlds of commercial finance and municipal finance are so diverse, the simple incorporation by reference of the 1978 commercial finance concepts into the municipal bankruptcy arena simply did not work." See S. Rep. No. 100-506, at 3 (1988). The House Report to the 1988 amendments pointed out that a municipality is different than other debtors in bankruptcy, because "a municipality cannot simply go out of business" and "must continue to provide its residents with essential services." H.R. Rep. No. 100-1011, at 2 (1988). And so Chapter 9 "is designed just for municipalities, to keep them in existence." Id. Accordingly, both the Senate and House Reports for the 1988 amendments stated a need to fix "inconsistencies between bankruptcy law and principles of municipal finance." Id. at 3; accord S. Rep. No. 100-506, at 1.

         Congress had been urged to make these amendments by a range of officials and groups including the Vice Mayor of San Jose, California (on behalf of the National League of Cities), the National Bankruptcy Conference, and the National Association of Bond Lawyers. H.R. Rep. No. 100-1011, at 1. In response, Congress then articulated several specific concerns stemming from the commercial concepts that had been incorporated into municipal bankruptcy law. One of the concerns was that, without the amendments, Section 552(b) of the Bankruptcy Code might "effectively destroy the distinction between general obligation debt and limited revenue obligation debt," in part by allowing "general creditors of the municipality to seek payment from the pledged revenues." S. Rep. No. 100-506, at 5.

         Revenue bonds are bonds "issued to finance projects or programs . . . [such as] toll roads, water systems, sports and convention centers, health care facilities, sewer and waste water treatment facilities, power generating facilities, waste disposal facilities, or low and moderate income housing programs," and are paid through pledged revenue from the project or system. S. Rep. No. 100-506, at 4. By contrast, general obligation bonds are those "for which the general taxing power of the issuer is pledged to repay the bonds." Id. at 4-5. There are clear, well-delineated contrasts between these types of bonds. For revenue bonds, "bondholders cannot look to any other assets of the municipality for repayment," H.R. Rep. No. 100-1011, at 4, meaning that "the general taxpayers are usually not committed to repaying the [revenue] bonds or funding operational deficits through general tax revenues," S. Rep. No. 100-506, at 5. Accordingly, the rates on the different types of bonds can be different for the same ...

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