San Bernardino City Starts Negotiation with Major Creditors

by San Antonio Attorney

San Bernardino, California has started discussions with certain insurers and bondholders. This is the first time they are talking since the city filed for bankruptcy two years ago.

At a court hearing on Thursday, the city’s attorney said that a mediation session with Ambac Assurance Corp. took place on August 5. The city’s $50 million pension obligation bonds were insured by Ambac in 2005.

The holding company was also negotiating on behalf of Wells Fargo and Erste Europäische Pfandbrief-und Kommunalkreditbank AG. The terms of negotiations are subject to a gag order. The city will start discussions soon with National Public Finance Guarantee Corp, which is also a bond insurer.

San Bernardino filed for bankruptcy protection in August 2012 with $45 million budget deficit. The city is one of several municipal bankruptcy cases being monitored by the municipal bond market. Public workers, bondholders, and other local and state governments want to know how financially troubled cities deal with their debts to Wall Street, in comparison with other creditors, in a Chapter 9 bankruptcy.

Stockton City also filed for bankruptcy protection two years ago, and it is nearer to exiting Chapter 9. The biggest municipal bankruptcy filed by Detroit, Michigan, is also nearing bankruptcy exit since it filed a restructuring plan to reduce its $18 billion of debt in February.

San Bernardino has not filed a bankruptcy exit plan. It has, however, reached a preliminary agreement with the police union after several months of discussions. It has also reached an agreement with California Public Employees’ Retirement System, the city’s biggest creditor.

The city has made substantial slashes in the salary and other benefits on its firefighters and police personnel. The police union has already made a deal with the city officials, but the firefighters have not.

Currently, there is still no deadline on the city to propose a plan to exit bankruptcy.

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