Court Finds ACA Financial Guaranty Must Back Pre-Bankruptcy Bonds

Orrick - Finance 20/20
Contact

Earlier this month, Judge Judith J. Gische of the Appellate Division of the Supreme Court of New York, First Judicial Department found that ACA Financial Guaranty Corporation, as bond insurer, must make future, post-confirmation principal and interest payments on bonds issued pre-bankruptcy by a municipal issuer despite the fact that the bonds were exchanged for new bonds and cancelled under the municipality’s chapter 9 plan. The Court required ACA to make these payments because “neither the plan of debt adjustment nor the discharge of the bond debt in the bankruptcy proceeding changed the obligations under the parties’ contracts of insurance.” The insurance policies at issue were governed by New York law. This decision makes clear that monoline insurers must continue to extend coverage to bondholders after a municipal issuer files for chapter 9 and obtains a discharge of the bond debt in bankruptcy. See Oppenheimer Amt-Free Municipals v. ACA Fin. Guar. Corp., 2013 N.Y. App. Div. LEXIS 5688 (N.Y. App. Div. 1st Dep’t Sept. 3, 2013).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Orrick - Finance 20/20 | Attorney Advertising

Written by:

Orrick - Finance 20/20
Contact
more
less

Orrick - Finance 20/20 on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide