Special Revenue Bonds Chapter 9

Chapter 9 of the bankruptcy code is the sole chapter under which a municipality may seek bankruptcy relief.

Special revenue bonds chapter 9. Revenues subject to statutory lien. Special revenue bonds by contrast will continue to be secured and serviced during the pendency of the chapter 9 case through continuing application and payment of ongoing special revenues. In 1988 the u s. Xii that case presented a similar dispute whether bondholders could.

Special revenue bonds are those that raise special revenue which is defined under bankruptcy code 902 2. Under that section a chapter 9 petition does not operate to stay application of pledged special revenues to payment of indebtedness secured by such revenues. Chapter 9 has evolved since it was first enacted in 1934. Special revenues must be used to fund the necessary operating expenses of the special project and may not be diverted to support the general obligations of the municipality.

Special revenues are intended to be unimpaired and to be paid timely during a chapter 9. Defaulted bondholders are expected to seek mandamus in court to require the municipal borrower to raise its rates. Iii and this opinion has important implications for holders of bonds secured by special revenues as it may conflict with a prior decision suggesting that municipal debtors must continue to remit those pledged special revenues during the pendency of a chapter 9 bankruptcy case. The application of pledged special revenues to indebtedness secured by such revenues is not stayed as long as the pledge is consistent with the regulations.

The contemplated remedy for default often focuses on a covenant to charge rates sufficient to amortize the debt. The first circuit opinion may be at odds with a decision issued in the chapter 9 bankruptcy case of jefferson county alabama. Chapter 9 draws a distinction between two types of bonds issued by municipalities to raise money. Special revenue bonds an understanding of chapter 9 is especially critical for investors who frequently invest in municipal bonds.

Flachsbart washington and lee university school of law follow this and additional works at https scholarlycommons law wlu edu wlulr part of thebankruptcy law commons. Thus an indenture trustee or other paying agent may apply pledged funds to payments coming due or distribute the pledged funds to bondholders without violating the automatic stay. In monday s decision the appeals court judges said that the judge in the jefferson county alabama. Municipal bonds in bankruptcy 902 2 and the proper scope of special revenues in chapter 9 alexander d.