Liens Against Pledged Revenues Did Not Attach Post-Petition

Liens Against Pledged Revenues Did Not Attach Post-Petition

The bankruptcy judge presiding over the City of Chester’s Chapter 9 reorganization proceeding recently issued an important opinion related to the attachment of a lien securing certain revenue bonds to post-petition revenues.

At issue was whether the security interest against certain pledged revenues extended to revenues generated post-petition. To decide the controversy, the court had to decide the following: 1) whether the security interests were properly perfected; 2) whether the liens were consensual or statutory; 3) whether the post-petition revenues could be considered proceeds of pre petition property, and 4) whether the pledged revenues were special revenues under §928.

Bonds to raise funds to finance construction of a soccer stadium in the City of Chester. Pledged revenues-> annual slot machine license operation fee, revenues de rides from table games at horse racing ability The Creditor Defendants’ security interests in the Pledged Revenues are properly perfected under Pennsylvania law The Creditor Defendants hold consensual, not statutory, liens against the Pledged Revenues Because the Pledged Revenues do not constitute proceeds, products, offspring, or profits derived from prepetition property, § 552(b)(1) does not apply to except the Creditor Defendants’ liens against the Pledged Revenues from § 552(a) Because none of the Pledged Revenues are “special revenues,” § 928 does not except the Pledged Revenues from § 552(a)