United States Court of Appeals 

For the First Circuit 

No. 17-2079 

IN RE: THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO 

RICO, as representative of Puerto Rico Electric Power Authority 

(PREPA), 

Debtor. 

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, 

v. 

AD HOC GROUP OF PREPA BONDHOLDERS; ASSURED GUARANTY CORPORATION; 

ASSURED GUARANTY MUNICIPAL CORPORATION; NATIONAL PUBLIC FINANCE 

GUARANTEE CORPORATION; SYNCORA GUARANTEE, INC., 

Movants, Appellants. 

APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF PUERTO RICO 

[Hon. Laura Taylor Swain, U.S. District Judge

] 

Before 

Howard, Chief Judge, 

Kayatta, Circuit Judge, 

and Torresen, Chief U.S. District Judge.

 

Of the Southern District of New York, sitting by designation. 

Of the District of Maine, sitting by designation. 
Martin 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. 

Thomas 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 PérezRomán, 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 PérezOchoa; 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. 

Carlos 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. 

August 8, 2018 
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KAYATTA, Circuit Judge. We consider 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. 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. 

I. 

Title 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. 

 1 The Puerto Rico Oversight, Management, and Economic 

Stability Act, 48 U.S.C. §§ 2101–2241. 
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§§ 2121, 2141. These powers include the authority to designate 

governmental instrumentalities as eligible to petition for courtsupervised 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)). 

Appellants, 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 
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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. 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 Title III court 

concluded that "cause" did not exist under 11 U.S.C. § 362(d)(1) 

to lift the stay because the balance of harms cut against the 

relief requested. 

II. 

We address first the limitation imposed by Section 305. 

That section provides: 

[N]otwithstanding any power of the court, 

unless the Oversight Board consents or the 

plan so provides, the court may not, by any 

stay, order, or decree, in the case or 

otherwise, interfere with-- (1) any of the 
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political or governmental powers of the 

debtor; (2) any of the property or revenues of 

the debtor; or (3) the use or enjoyment by the 

debtor of any income-producing property. 

48 U.S.C. § 2165. In an effort to dispose quickly of that 

limitation, the bondholders cite two California municipal 

bankruptcy cases for the proposition that by allowing the debtor 

to file a Title III petition, the Oversight Board consented carte 

blanche to the full exercise of the Title III court's powers. See 

Alliance Capital Mgmt. L.P. v. Cty. Of Orange (In re Cty. of 

Orange), 179 B.R. 185, 190 (Bankr. C.D. Cal. 1995) (noting that 

county had consented to court's jurisdiction to order adequate 

protection, without clarifying the nature of that consent); Ass'n 

of Retired Emps. of Stockton v. City of Stockton (In re City of 

Stockton), 478 B.R. 8, 22 (Bankr. E.D. Cal. 2012) (characterizing 

the consent in Cty. of Orange as consent under 11 U.S.C. § 904 by 

virtue of having filed the bankruptcy petition). We reject this 

approach because it would render Section 305 a nullity; consent 

would always exist because Section 305 only applies in Title III 

cases, and in those cases, the Oversight Board must approve the 

debtor's filing. See 48 U.S.C. § 2164(a); see also id. § 2124(j). 

Anticipating the possibility that this "consent" argument 

would fail, the bondholders also urge a more nuanced reading of 

Section 305 as limiting only what the Title III court can itself 

directly order. The Title III court disagreed. It read 
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Section 305 as not only preventing the Title III court from 

directly interfering with the listed powers and properties of 

PREPA, but also from indirectly interfering by issuing an order 

for the purpose of allowing another court to engage in any such 

interference, at least when the relief sought is the appointment 

of a receiver. The Title III court reasoned that Section 305 and 

other PROMESA provisions create a structure that is "protective of 

the autonomy of public entities engaged in debt adjustment 

proceedings." It also read the word "otherwise" in Section 305 as 

prohibiting the Title III court from indirectly doing (i.e., 

allowing others to do) what it could not directly do.2 

We agree with the bondholders that Section 305 does not 

tie the Title III court's hands quite so much as that court found 

it did. Our reasoning begins with the statutory text. The text 

of Section 305 trains on the powers of "the court," plainly the 

Title III court. It states specifically what that court may not 

do: "interfere with" certain powers and assets of the debtor "by 

any stay, order, or decree." The bondholders' principal request 

for relief does not ask the Title III court to issue any such stay, 

order, or decree that itself interferes with the debtor's powers 

or assets. Rather, the bondholders ask the Title III court to 

 2 As the Title III court noted, 11 U.S.C. § 105(b), 

incorporated by PROMESA section 301, 48 U.S.C. § 2161(a), contains 

language prohibiting the Title III court from appointing a 

receiver directly. 
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stand aside -- by lifting the stay -- to allow another court under 

Commonwealth law to decide whether to do what the Title III court 

is assumed not to be able to do. Nothing in that text plainly 

calls for us to read a prohibition on interference by the Title III 

court so broadly as to encompass an action that might allow another 

court to decide whether to interfere with the powers or properties 

of the debtors. 

The statute's use of the word "otherwise" does not alter 

our reading. The word "otherwise" serves not as a catchall for 

broadly defining what the Title III court cannot do. Rather, it 

broadly defines where the Title III court may not interfere: "in 

the case or otherwise." In this manner, it makes clear that the 

Title III court cannot issue an order of interference, for example, 

when deciding disputes under its "related to" jurisdiction. See 

48 U.S.C. § 2166(a)(2) (Title III court has original but not 

exclusive jurisdiction over civil proceedings "arising in or 

related to cases under" PROMESA); see also Celotex Corp. v. 

Edwards, 514 U.S. 300, 307–08 & 307 n.5 (1995) (identical provision 

for bankruptcy code gives bankruptcy court broad "related to" 

jurisdiction over suits between third parties that have an effect 

on the debtor's property). 

Our interpretation of the text of Section 305 secures 

even firmer footing when grounded in context because Title III of 

PROMESA also incorporates section 362(d)(1) of the bankruptcy 
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code. 48 U.S.C. § 2161(a) (incorporating 11 U.S.C. § 362). That 

section says that the court "shall" provide relief from the 

automatic stay "for cause, including the lack of adequate 

protection of [a creditor's] interest in property." 11 U.S.C. 

§ 362(d)(1). In so providing, section 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. 

See Note Holders v. Large Private Beneficial Owners (In re Tribune 

Co. Fraudulent Conveyance Litig.), 818 F.3d 98, 108–09 (2d Cir. 

2016). 

If we were nevertheless to read Section 305 broadly as 

barring the Title III court from lifting the automatic stay as 

otherwise allowed by section 362(d)(1) to enable another court to 

take action interfering with the debtor's property, we would 

effectively wipe out section 362(d)(1) whenever the creditor 

needed protection of its interest in that property.3 The creditor 

would be left to stand by helplessly as the debtor spent the 

creditor's collateral, leaving the debtor entirely unsecured. As 

we have previously said, we would "doubt the constitutionality of" 

a rule that would allow a debtor to "expend every penny of the 

Movants' collateral, leaving the debt entirely unsecured." Peaje 

 3 So, too, would we effectively eliminate subsections (3) and 

(4), and potentially (2), of 11 U.S.C. § 362(d). 
- 10 - 

Investments LLC v. García-Padilla, 845 F.3d 505, 511–12 (1st Cir. 

2017) ("Peaje I"). Such a marked change in the status quo ante 

undercutting creditor rights, see United States v. Whiting Pools, 

Inc., 462 U.S. 198, 207 (1983) (describing rights and treatment of 

secured creditors in bankruptcy, including right to adequate 

protection), would be an ambitious undertaking unlikely to have 

been implemented by Congress without some discussion and 

expression of awareness. 

The Title III court did try to deflect these problems by 

stating that its refusal to lift the stay arose in the context of 

a request for a receiver, certainly a robust form of interference 

with the debtor's finances and property. The implication -- which 

the debtor's brief makes express -- is that perhaps the Title III 

court would lift the stay to allow another court to provide some 

other type of protection of collateral. But neither the Title III 

court nor the debtor points to any toehold in the language of 

Section 305 that would accommodate a distinction allowing the 

Title III court to lift the stay to allow another court to 

interfere with the debtor's property sometimes but not others. 

Either Section 305 only bars the Title III court itself from 

interfering, or it bars that court also from lifting the stay to 

allow another court to do that which it cannot do. And it is only 

the latter, broader possibility that creates a situation in which 
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the creditor is deprived of any means of protecting its property 

interest. 

The Title III court also pointed out that Section 305 

would not bar section 362(d) relief when the Oversight Board 

consents to the requested relief. But the principal aim of 

section 362(d)(1) is to protect the creditor when protection is 

needed, which is customarily when the debtor is not obliging. In 

short, saying that a creditor can get relief from the stay when 

the debtor's representative consents effectively wipes out 

section 362(d)(1) precisely when it is most likely needed. 

We also find no inconsistency between the apparent 

purpose served by Section 305 and a reading of that section as 

only barring the Title III court itself from directly interfering 

with the debtor's powers or property. Like the Title III court, 

we read Section 305 as respectful and protective of the status of 

the Commonwealth and its instrumentalities as governments, much 

like section 904 of the municipal bankruptcy code respects and 

protects the autonomy of states and their political subdivisions. 

See 11 U.S.C. § 904. When a bankruptcy or Title III court acts 

directly, it impinges on that autonomy. But when it merely stands 

aside by lifting the automatic stay, it allows the processes of 

state or territorial law to operate in normal course as if there 

were no bankruptcy. 
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Finally, the limited case law on this subject provides 

no holdings or reasoning that call for a contrary interpretation 

of Section 305. Other courts have had occasion to pass on the 

plain meaning of 11 U.S.C. § 904, but only in the context of 

considering the bankruptcy court's ability to interfere directly 

with the powers, property, and revenues of the debtor. In 

Detroit's recent bankruptcy case, the Sixth Circuit held that the 

"plain language [of section 904] expressly prohibits the 

bankruptcy court from" ordering the city's water department to 

restore service or institute a water affordability plan for 

residents. Lyda v. City of Detroit (In re City of Detroit), 841 

F.3d 684, 696 (6th Cir. 2016). Likewise, in municipal bankruptcy 

proceedings for the city of Stockton, California, the bankruptcy 

court determined that section 904 prevented it from ordering the 

city to continue paying for the health benefits of retired city 

employees, reasoning that section 904 is a like a "clean-up hitter 

in baseball" and limits the court's authority "absolute[ly]" when 

applicable. In re City of Stockton, 478 B.R. at 20. Though these 

interpretations express a broad view of what the bankruptcy court 

in a municipal bankruptcy may not itself do without the debtor's 

consent, they make no effort to address whether and to what extent 

the bankruptcy court may lift the stay to allow another court to 

do what the bankruptcy court cannot do. 
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For these reasons, we hold that Section 305 does not 

prohibit as a matter of course the Title III court from lifting 

the stay when the facts establish a creditor's entitlement to the 

appointment of a receiver in a different court in order to protect 

a creditor's collateral should that protection otherwise be 

necessary and appropriate. Although we share the Title III court's 

concerns about the deleterious impact that a robust receivership 

outside the Title III court's control might have on the efforts of 

the Title III court to consolidate and adjust the debtor's affairs, 

those concerns are best addressed in deciding whether, precisely 

to what extent, and for what purpose relief from the automatic 

stay might be granted. In other words, it might be possible to 

grant tailored relief for the creditor to seek a receivership 

provided that the receiver only take specific steps necessary to 

protect the creditor's collateral. Further, concerns about moving 

the locus of the debtor's protections outside the Title III court 

are greatly ameliorated by the fact that the Oversight Board itself 

can always, through consent, opt for a regime held more tightly 

within the federal forum's direct control. 

III. 

We turn next to the Title III court's holding that the 

exclusive jurisdiction provision contained in PROMESA 

section 306(b), 48 U.S.C. § 2166(b), operates to prohibit a court 

from entering an order to lift the stay upon a determination of 
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inadequate protection if the relief sought is the appointment of 

a receiver. Unlike Section 305, Section 306's exclusive 

jurisdiction over property rule is not a provision specially 

crafted for municipal or territorial bankruptcies. Rather, it is 

the general rule for bankruptcies. See 28 U.S.C. § 1334(e). In 

short, Section 306(b) provides that bankruptcy courts acquire 

exclusive jurisdiction over a debtor's property. 

This grant of exclusive jurisdiction has to our 

knowledge never limited the bankruptcy court's power to allow 

others to act on the debtor's property with the permission of the 

bankruptcy court. For example, bankruptcy courts routinely grant 

leave to allow a creditor to sell a debtor's property without 

threat to the exclusive jurisdiction rule. See, e.g., Catalano v. 

Comm'r of Internal Revenue, 279 F.3d 682, 687 (9th Cir. 2002) 

(order lifting stay to permit bank to foreclose on residential 

property did not extinguish the estate's interest in the property 

or constitute abandonment of the property). 

Allowing the Title III court to permit or enlist others 

to take action with the court's permission enhances rather than 

limits the control given to the Title III court by Section 306. 

See In re Ridgemont Apartment Assocs., 105 B.R. 738, 741 (Bankr. 

N.D. Ga. 1989) (lifting stay for creditor to obtain a receiver to 

collect some income from debtor's rental property did not cede 

exclusive jurisdiction over the debtor's property, as Congress 
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gave "considerable flexibility" to bankruptcy courts to protect 

both creditors and debtors). Moreover, were we to read Section 306 

as precluding the Title III court from allowing a Commonwealth 

court to protect a creditor's collateral from actions of the 

debtor, we would create the same problem that our reading of 

Section 305 sought to avoid: The creditor would have no forum 

that could provide any protection. Section 306 is better 

understood as a housekeeping provision keeping the bankruptcy 

process ultimately under the prerogative of the Title III court. 

Even when the Title III court lifts the stay, that prerogative 

remains. Thus, we conclude that Section 306(b) does not prevent 

a Title III court from, after a determination of "cause," lifting 

the stay to allow a creditor to seek the appointment of a receiver 

in another court. 

IV. 

The Title III court also included a brief section in its 

order stating, in the alternative, that it would deny the requested 

relief from the automatic stay even if it had the power to do 

otherwise. In so stating, it identified the impediments that a 

receiver appointed outside the adjustment proceeding would pose to 

the successful conclusion of that proceeding. The Title III court, 

however, undertook no assessment of the extent to which any 

collateral of the bondholders might be irreversibly harmed in the 

interim, or whether PREPA could demonstrate that it was adequately 
- 16 - 

protecting that interest, factors a court would ordinarily examine 

and weigh. See United Sav. Ass'n of Texas v. Timbers of Inwood 

Forest Assocs., 484 U.S. 365, 370 (1988) (adequate protection means 

that the value of the creditor's interest in the collateral must 

be protected from diminution while the property is being used or 

retained during the bankruptcy proceeding); Mazzeo v. Lenhart (In 

re Mazzeo), 167 F.3d 139, 142 (2d Cir. 1999) (burden falls first 

on the creditor to make an initial showing of cause, then on the 

debtor to show lack of cause). It is true that the bondholders 

took the position that their motion could be decided "on the basis 

of law and limited undisputed facts." But one of the predicate 

legal issues was whether and to what extent the bondholders 

possessed property interests. The Title III court found it 

unnecessary to decide that issue. We, in turn, decline to do so 

now without first having the issue framed by proceedings in the 

Title III court. Cf. SW Boston Hotel Venture, LLC v. City of 

Boston (In re SW Boston Hotel Venture, LLC), 748 F.3d 393, 402 

(1st Cir. 2014) (bankruptcy court fact-finding is reviewed for 

clear error); see also Whispering Pines Estates, Inc. v. Flash 

Island, Inc. (In re Whispering Pines Estates, Inc.), 369 B.R. 752, 

757 (B.A.P. 1st Cir. 2007) (review of stay relief order is for 

abuse of discretion). 

We agree with the parties that the factors identified by 

the Second Circuit in Sonnax and recited by the Title III court 
- 17 - 

provide a helpful framework for considering whether the Title III 

court should permit litigation to proceed in a different forum. 

See Sonnax Indus. v. Tri Component Products Corp. (In re Sonnax 

Indus.), 907 F.2d 1280, 1286 (2d Cir. 1990). But the Title III 

court’s order does not make clear what use it made of these 

guideposts beyond a high-level consideration of the balance of the 

harms. It also made no findings regarding what limitations it 

might be able to impose upon the receiver. 

Additionally, to say that the potential harm to the 

debtor and the Title III process "far outweighs the temporary 

impediments imposed on the bondholders" would also seem to require 

some assessment of the pre-petition value of the bondholders' 

collateral (if any exists), whether the bondholders face a threat 

of uncompensated diminution in such value, whether the bondholders 

are seeking the protection of existing collateral or, instead, the 

creation of new collateral, and what, if any, adequate protection 

PREPA can offer short of a receiver being appointed to manage it 

if protection is warranted. See United Sav. Ass'n of Texas, 484 

U.S. at 370; Lend Lease v. Briggs Transp. Co. (In re Briggs Transp. 

Co.), 780 F.2d 1339, 1344 (8th Cir. 1985) (debtor can propose a 

form of relief to provide adequate protection of a secured 

creditor's interest in property). Without more to understand what 

the Title III court weighed on each side of the balance of the 

harms, we cannot say whether there was adequate support upon which 
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to rest the Title III court's exercise of its discretion in finding 

that "cause" did not exist. 

The Title III court did observe in its order of 

September 14, 2017, that the bondholders only faced "temporary 

impediments." Much time has since passed, and the situation on 

the ground -- and at PREPA -- has changed greatly since last 

September in the wake of Hurricanes Irma and Maria. Additionally, 

our decision today in Peaje Investments LLC v. Financial Oversight 

and Management Board for Puerto Rico (In re Financial Oversight 

and Management Board for Puerto Rico), Nos. 17-2165, 17-2166, 17-

2167, confirms some of the basic ground rules that may govern the 

ascertainment and classification of security interests in this 

case. Having now clarified the legitimate questions raised 

concerning the effects of Section 305 and Section 306 of PROMESA, 

we think it best to allow the bondholders to file a new and updated 

request for relief from the automatic stay so that the parties and 

the Title III court can focus on the merits of that request free 

of any thought that the request is categorically precluded.

That being said, nothing in this opinion should be read 

as implying any decision concerning issues not expressly addressed 

in this opinion. 

V. 

For the reasons stated above, we vacate the order denying 

the bondholders' request for relief from the automatic stay and we 
- 19 - 

remand for further proceedings consistent with this opinion. No 

costs are awarded.