Vallejo Chap. 9 May Finish by Mid-Year

Vallejo could wrap up the biggest municipal bankruptcy since Orange County, Calif., by the end of the summer.

The city has been in negotiations and court battles with labor unions since it sought Chapter 9 bankruptcy protection in May 2008. It has reached deals with two unions and recently entered into arbitration with its other two labor groups.

The city has long said that the public employee contracts are the main issues it must deal with in the bankruptcy, and the City Council late last year passed a bankruptcy workout plan that will guide its lawyers as they seek to bring the bankruptcy to a close.

Vallejo, which also has over $51.6 million of general fund bond debt, wants a three-year moratorium on debt payments. The bulk of the general fund debt is held by Union Bank of California, which was the letter of credit provider for the city’s variable-rate demand obligations. Under the plan, the city would accrue no interest on the bonds for four years, and it would not begin to pay down the principal at reduced, but unspecified, interest rates until fiscal 2013-14.

Retirees, who could be hurt by decreases in their healthcare benefits, are pushing the city to propose a plan in court.

Bankruptcy Judge Michael McManus this week refused to set a deadline for the city, but he told its lawyers to be ready soon.

“You’re probably going to have to live with a summer deadline,” he said at a hearing Monday.

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Bankruptcy
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