Financial Oversight and Mgmt Board for Puerto Rico v. Ad Hoc Group of PREPA Bondholders

Case Type:
Business
Case Status:
Reversed and Remanded
Citation:
17–2079 (1st Circuit, Aug 08,2018) Published
Tag(s):
Ruling:
Vacated and remanded for further proceedings.
Procedural context:
The court was considering again the application of PROMESA,1 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, but the circuit court concluded otherwise.
Facts:
Appellants 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). The Title III court denied the bondholders' request for relief from the automatic stay.
Judge(s):
Howard, Kayatta (author), and Torresen (D.J. Me., Sitting by designation)

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