Andalusian Global Designated Activity Company, et al. v. Financial Oversight and Management Board for Puerto Rico, et al.

Federal bankruptcy law generally provides that a creditor’s lien does not extend to “property acquired . . . after the commencement of the [bankruptcy] case.” 11 U.S.C. § 552(a). But the Bankruptcy Code creates an important exception—designed to protect the value of the multitudes of secured loans across our economy—where the debtor previously pledged as loan collateral “property . . . acquired before the commencement of the case” and the “proceeds . . . of such property.” Id. § 552(b)(1). In those circumstances, the secured creditor’s lien “extends to such proceeds . . . acquired . . . after the commencement of the case,” in recognition of the security interest for which the creditor bargained. Ibid. Here, respondent Employees Retirement System of the Government of the Commonwealth of Puerto Rico (“ERS”) raised $2.9 billion in bonds, pledging as collateral ERS’ entitlement to receive statutorily mandated employer contributions to ERS’ pension system. ERS filed for bankruptcy nine years later. The question presented is whether ERS’ entitlement to those future payments, though not fixed and calculable at the time of bankruptcy, is “property,” and the subsequent payments “proceeds,” within the meaning of Section 552(b)(1). Contrary to the decisions of the Fourth, Seventh, Eighth, and Tenth Circuits, the First Circuit held that they are not, thereby endangering secured lending and municipal finance.