Assured Guaranty Corp. v. Fin. Oversight & Mgmt. Bd. for P.R. (In re Fin. Oversight & Mgmt. Bd. for P.R.)

• Decision Date: 03 March 2021
• Docket Number: No. 20-1930, No. 20-1931,20-1930
• Citation: 989 F.3d 170
• Parties: IN RE: The FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, as Representative for The Commonwealth of Puerto Rico; The Financial Oversight and Management Board for Puerto Rico, as Representative for The Puerto Rico Highways and Transportation Authority ; The Financial Oversight and Management Board for Puerto Rico, as Representative for The Puerto Rico Electric Power Authority (Prepa); The Financial Oversight and Management Board for Puerto Rico, as Representative for The Puerto Rico Sales Tax Financing Corporation, a/k/a Cofina; The Financial Oversight and Management Board for Puerto Rico, as Representative for The Employees Retirement System of the Government of the Commonwealth of Puerto Rico ; The Financial Oversight and Management Board for Puerto Rico, as Representative for The Puerto Rico Public Buildings Authority, Debtors. Assured Guaranty Corporation; Assured Guaranty Municipal Corporation; Ambac Assurance Corporation; The Financial Guaranty Insurance Company; National Public Finance Guarantee Corporation, Movants, Appellants, v. Financial Oversight and Management Board for Puerto Rico, as Representative for The Commonwealth of Puerto Rico; The Financial Oversight and Management Board for Puerto Rico, as Representative for The Puerto Rico Highways and Transportation Authority, Debtors, Appellees, v. Puerto Rico Fiscal Agency and Financial Advisory Authority, Respondent, Appellee, Official Committee of Unsecured Creditors; Amerinational Community Services, LLC, as Servicer for the GDB Debt Recovery Authority; Cantor-Katz Collateral Monitor LLC, as Collateral Monitor for the GDB Debt Recovery Authority, Interested Parties, Appellees. Assured Guaranty Corporation; Assured Guaranty Municipal Corporation; Ambac Assurance Corporation; Financial Guaranty Insurance Company; U.S. Bank Trust National Association, as successor Trustee, Movants, Appellants, v. Financial Oversight and Management Board for Puerto Rico, as Representative for The Commonwealth of Puerto Rico, Debtor, Appellee, v. Puerto Rico Fiscal Agency and Financial Advisory Authority, Respondent, Appellee, Bacardi International Limited; Bacardi Corporation; Destileria Serralles, Inc. ; Official Committee of Unsecured Creditors, Interested Parties, Appellees.
• Court: U.S. Court of Appeals — First Circuit

989 F.3d 170

IN RE: The FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, as Representative for The Commonwealth of Puerto Rico; The Financial Oversight and Management Board for Puerto Rico, as Representative for The Puerto Rico Highways and Transportation Authority ; The Financial Oversight and Management Board for Puerto Rico, as Representative for The Puerto Rico Electric Power Authority (Prepa); The Financial Oversight and Management Board for Puerto Rico, as Representative for The Puerto Rico Sales Tax Financing Corporation, a/k/a Cofina; The Financial Oversight and Management Board for Puerto Rico, as Representative for The Employees Retirement System of the Government of the Commonwealth of Puerto Rico ; The Financial Oversight and Management Board for Puerto Rico, as Representative for The Puerto Rico Public Buildings Authority, Debtors.

Assured Guaranty Corporation; Assured Guaranty Municipal Corporation; Ambac Assurance Corporation; The Financial Guaranty Insurance Company; National Public Finance Guarantee Corporation, Movants, Appellants,

v.Financial Oversight and Management Board for Puerto Rico, as Representative for The Commonwealth of Puerto Rico; The Financial Oversight and Management Board for Puerto Rico, as Representative for The Puerto Rico Highways and Transportation Authority, Debtors, Appellees,

v.Puerto Rico Fiscal Agency and Financial Advisory Authority, Respondent, Appellee,Official Committee of Unsecured Creditors; Amerinational Community Services, LLC, as Servicer for the GDB Debt Recovery Authority; Cantor-Katz Collateral Monitor LLC, as Collateral Monitor for the GDB Debt Recovery Authority, Interested Parties, Appellees.

Assured Guaranty Corporation; Assured Guaranty Municipal Corporation; Ambac Assurance Corporation; Financial Guaranty Insurance Company; U.S. Bank Trust National Association, as successor Trustee, Movants, Appellants,

v.Financial Oversight and Management Board for Puerto Rico, as Representative for The Commonwealth of Puerto Rico, Debtor, Appellee,

v.Puerto Rico Fiscal Agency and Financial Advisory Authority, Respondent, Appellee,Bacardi International Limited; Bacardi Corporation; Destileria Serralles, Inc. ; Official Committee of Unsecured Creditors, Interested Parties, Appellees.

No. 20-1930

No. 20-1931

United States Court of Appeals, First Circuit.

March 3, 2021

Neal Kumar Katyal, with whom Sean Marotta, Mitchell P. Reich, Reedy C. Swanson, Washington, DC, Nathaniel A.G. Zelinsky, and Hogan Lovells US LLP were on brief, for appellants Assured Guaranty Corp., Assured Guaranty Municipal Corp., Ambac Assurance Corporation, National Public Finance Guarantee Corporation, and Financial Guaranty Insurance Company.

Atara Miller, with whom Dennis F. Dunne, Grant R. Mainland, John J. Hughes, III, Jonathan Ohring, Milbank LLP, New York, NY,Roberto Cámara-Fuertes, and Ferraiuoli LLC were on brief, for appellant Ambac Assurance Corporation.

Mark C. Ellenberg, Washington, DC, Howard R. Hawkins, Jr., William J. Natbony, Thomas J. Curtin, Casey H. Servais, New York, NY, Cadwalder, Wickersham & Taft, Heriberto Burgos Pérez, Ricardo F. Casella-Sánchez, Diana Pérez-Seda, San Juan, PR, and Casellas Alcover & Burgos P.S.C. on brief, for appellants Assured Guaranty Corp. and Assured Guaranty Municipal Corp.

Gregory Silbert and Weil, Gotshal & Manges LLP, New York, NY, on brief for appellant National Public Finance Guarantee Corp.

María E. Picó, Rexach & Pico, CSP, Martin A. Sosland, Dallas, TX, Jason W. Callen, Nashville, TN, and Butler Snow LLP on brief for appellant Financial Guaranty Insurance Company.

Ronald J. Silverman, Los Angeles, CA, Michael C. Hefter, New York, NY, Hogan Lovells US LLP, Eric A. Tulla, Iris J. Cabrera-Gómez, and Rivera, Tulla and Ferrer, LLC, San Juan, PR, on brief for appellant U.S. Bank Trust National Association.

Michael T. Mervis and Martin J. Bienenstock, New York, NY, with whom Timothy W. Mungovan, John E. Roberts, Elliot R. Stevens, Boston, MA, Adam L. Deming, Michael A. Firestein, Lary Alan Rappaport, Los Angeles, CA, Jeffrey W. Levitan, Mark D. Harris, Margaret A. Dale, Ehud Barak, David A. Munkittrick, Daniel D. Desatnik, New York, NY, and Proskauer Rose LLP were on brief, for appellee Financial Oversight and Management Board for Puerto Rico.

Arturo J. García-Solá, with whom Alejandro José Cepeda-Díaz, Nayuan Zouairabani, and McConnell Valdes LLC, Hato Rey, PR, were on brief, for interested party AmeriNational Community Services, LLC.

Elizabeth L. McKeen, with whom Ashley M. Pavel, Newport Beach, CA, John J. Rapisardi, New York, NY, Peter Friedman, Washington, DC, and O'Melveny & Myers LLP were on brief, for appellee Puerto Rico Fiscal Agency and Financial Advisory Authority.

Luc A. Despins, with whom Paul Hastings LLP, New York, NY, was on brief, for interested party Official Committee of Unsecured Creditors.

Douglas S. Mintz, with whom Douglas I. Koff, Abbey Walsh, New York, NY, Schulte, Roth & Zabel, Robert M. Loeb, Washington, DC, Sarah H. Sloan, Peter Amend, New York, NY, and Orrick, Herrington & Sutcliffe LLP were on brief, for interested party Cantor-Katz Collateral Monitor LLC.

Laura E. Appleby, Kyle R. Hosmer, Faegre Drinker Biddle & Reath LLP, and Kevin Carroll, New York, NY, on brief for amicus curiae Securities Industry and Financial Markets Association.

Before Lynch, Lipez, and Thompson, Circuit Judges.

LYNCH, Circuit Judge.

These companion cases from the Puerto Rico Oversight, Management, and Economic Stability Act ("PROMESA") Title III court in Puerto Rico involve bonds issued by the Puerto Rico Highways and Transportation Authority ("HTA") and the Puerto Rico Infrastructure and Financing Authority ("PRIFA"). Appellants Ambac Assurance Corporation, Assured Guaranty Corporation, Assured Guaranty Municipal Corporation, and Financial Guaranty Insurance Company (collectively, the "Monolines") had insured hundreds of millions of dollars of these HTA and PRIFA bonds against default. HTA and PRIFA defaulted on these bonds in 2015, causing the Monolines to make payments to their insureds. As a result, the Monolines brought claims against Puerto Rico, HTA, and PRIFA. In 2017, Puerto Rico and HTA filed voluntary petitions to begin Title III proceedings under PROMESA, triggering an automatic stay of certain claims against them pursuant to 11 U.S.C. § 362(a) as incorporated by PROMESA. See 48 U.S.C. §§ 2161 - 2177. In 2020, the Monolines amended their earlier 2019 petitions to the Title III court for relief from the automatic stay under 11 U.S.C. § 362(d) also as incorporated by PROMESA. See id. The Title III court denied these petitions, and the Monolines now appeal from this ruling. We hold that the Title III court did not abuse its discretion in denying relief from the § 362 stay.

I. Facts and Procedural History

A. PRIFA Bonds

In 1988, Puerto Rico established PRIFA to facilitate "[t]he construction, rehabilitation, acquisition, repair, preservation and replacement of the infrastructure of the Commonwealth." See P.R. Laws Ann. tit. 3, § 1901. Puerto Rico funded PRIFA in part using proceeds from excise taxes on rum (the "Rum Excise Taxes") produced in the Commonwealth and exported to the United States.¹ PRIFA's Enabling Act says that some portion of these excise taxes "shall be covered into a Special Fund to be maintained by or on behalf of [PRIFA]." Id. § 1914.

PRIFA is authorized to issue bonds and has done so. Id. § 1906(l). To repay its bonds, it can pledge "all or any portion of the federal excise taxes or other funds which should have been transferred by the Commonwealth to [PRIFA]." Id. § 1906(m). If PRIFA pledges funds it receives from the Commonwealth to repay its bonds, the pledge is subject to article VI, section 8 of Puerto Rico's Constitution. See id. § 1907(a). Section 8 says that if Puerto Rico's available revenues cannot meet the appropriations it has made in a given year, it must first pay its public debt before making "other disbursements ... in accordance with the order of priorities established by law." P.R. Const. art. VI, § 8. Puerto Rico is not liable for PRIFA's bonds. P.R. Laws Ann. tit. 3, § 1910.

PRIFA issued bonds in 1988 under a trust agreement.² It agreed to pay the principal and interest on the bonds using Pledged Revenues. The trust agreement defines Pledged Revenues as "Special Tax Revenues and any other moneys that have been deposited to the credit of the Sinking Fund." "Special Tax Revenues" are "the [Rum Excise Taxes] deposited to the credit of the Puerto Rico Infrastructure fund pursuant to the [PRIFA Enabling Act]." The Sinking Fund is a series of accounts created by the trust agreement to house the money used to make payments on PRIFA's bonds.³

B. HTA Bonds

In 1965, Puerto Rico established HTA to construct, operate, and manage the Commonwealth's transit and transportation facilities. See id. tit. 9, §§ 2001-2035. To fund its operations, HTA collects tolls (the "Toll Revenues"). Id. § 2004. Puerto Rico has also passed laws allocating certain taxes and fees to HTA (the "HTA Allocable Revenues"). See id. §§ 2021, 5681-5682 (motor vehicle license fees); id. tit. 13, §§ 31626, 31751(a)(1) (gasoline, gas oil, crude oil, and diesel oil excise taxes); id. §§ 31625, 31751(a)(4) (cigarette tax).

Like PRIFA, HTA is authorized to and has issued bonds. Id. tit. 9, § 2004(l). It can secure its bonds with revenue it generates and can pledge the "proceeds of any tax or other funds which may be made available to [HTA] by the Commonwealth" to pay the principal and interest on its bonds. Id. Again like PRIFA, if HTA pledges funds made available to it by the Commonwealth to repay its bonds, the pledge is subject to article VI, section 8 of Puerto Rico's Constitution. Id. Puerto Rico is not liable for HTA's bonds. Id. § 2012(h).

HTA issued bonds under general bond resolutions it adopted in 1968 and 1998. Approximately $815 million in 1968 bonds and $3.36 billion in 1998 bonds remain outstanding. Under the resolutions, HTA agreed to...