SAN FRANCISCO - Vallejo, Calif., which filed for Chapter 9 bankruptcy protection last week, will face a judge for the first time today in a pair of procedural hearings.
Vallejo's bankruptcy filing marks the biggest municipal bankruptcy since Orange County in 1994. The city is trying to escape labor contracts it says it cannot pay in the face of a slowing housing market and weak tax collections. It also has about $163 million of outstanding debt. Creditors include bondholders and credit enhancers Union Bank of California and MBIA Insurance Corp.
Bankruptcy lawyers, investors and government officials are watching the case closely. Top bankruptcy lawyers like James Spiotto,of Chapman and Cutler in Chicago, say the case could prompt other municipal bankruptcies if Vallejo can escape its labor contracts or reduce its $220 million accrued unfunded pension and retiree health care liabilities.
At today's hearing, the city is seeking to establish a time frame for creditors to object to the filing, according to filings by bankruptcy lawyer Marc Levinson of Orrick, Herrington & Sutcliffe LLP. The city wants to give creditors until June 9 to object to the filing.
City union leaders have said repeatedly that Vallejo is not bankrupt. Union bankruptcy lawyer Dean Gloster of Farella, Braun + Martel LLP didn't return calls seeking comment yesterday.
The labor unions and other creditors can ask the court to reject the city's bankruptcy filing on the grounds that Vallejo is actually still solvent. The labor groups commissioned an outside consultant to study the city's finances, and the consultant, Harvey Rose & Associates of San Francisco, said Vallejo is not insolvent.
In a more strictly procedural matter, the city has established a Web site with bankruptcy information and would like to use that as its main means of communication with its creditors. The site is accessible at www.ci.vallejo.ca.us. The city also plans to publish notice of its filing in the Vallejo Times Herald and The Bond Buyer.
Chief Judge Michael S. McManus has been assigned to hear the case in the U.S. Bankruptcy Court for the Eastern District of California in Sacramento. McManus was appointed to the bench on January 1994 and has been the chief bankruptcy judge since November 2000, according to his biography on the court's Web site.
Before his appointment, he was a bankruptcy lawyer in Sacramento for 15 years, first at Felderstein, Rosenberg & McManus and later at Diepenbrock, Wulff, Plant & Hannegan.