U.S. Bankruptcy Judge Appoints Mediator in San Bernardino's Chapter 9 Case

LOS ANGELES — The judge in the San Bernardino Chapter 9 bankruptcy case will appoint a Nevada judge as mediator.

U.S. Bankruptcy Judge Meredith Jury will issue an order on Aug. 12 explaining what issues Gregg Zive, a veteran federal bankruptcy judge, will tackle.

The city and its creditors agreed on Zive as a mediator although Paul Glassman, the attorney for San Bernardino, argued in court papers that no one should be appointed until a decision has been made regarding the city's eligibility to be in bankruptcy.

In June, Jury set an Aug. 28 hearing for summary judgment on eligibility.

San Bernardino's attorneys filed papers two weeks ago seeking summary judgment that would allow it to file for protection over the objections of the state's pension fund and a city employee union.

The California Public Employees' Retirement System and the San Bernardino Public Employees Association have come out in opposition. The pension fund and employee unions have until Friday to file papers in opposition to the city's eligibility to be in bankruptcy.

Ambac Assurance Co., Erste Europäische Pfandbrief-und Kommunalkreditbank AG and Wells Fargo NA filed a joint document the following week in support of the city's eligibility for bankruptcy.

The trio — referring to themselves as the POB (Pension Obligation Bond) creditors — urged the court in a filing to grant summary judgment in favor of the city on Chapter 9 eligibility; overrule in their entirety the objections to eligibility filed by the SBPEA, CalPERS, and other creditors; and enter an order of relief.

The so-called POB creditors are interested parties because of their roles with respect to the city's issuance of $50.4 million in taxable pension obligation bonds to refund the city's obligations to CalPERS relating to municipal employees' pension benefits.

San Bernardino and Stockton, Calif., which both filed bankruptcy last summer, are the first cities to test a state law strongly encouraging municipalities to enter mediation with creditors before they file bankruptcy.

Stockton, which entered mediation prior to filing, was deemed eligible to be in bankruptcy earlier this year. Claiming a fiscal emergency, San Bernardino went directly to the bankruptcy court without undergoing mediation.

In both cities, the state's pension fund has been battling with attorneys representing bondholders. CalPERS claims that it cannot be impaired under California law. In Stockton, city leaders have kept up on pension fund payments, which means a larger haircut for bondholders. In San Bernardino, the city has missed approximately $13 million in payments to the pension fund.

Attorneys for the retired employees filed a motion in favor of a mediator, but argued against mediation related to retired employees until the city recognizes a retiree committee.

The retirees' attorneys argued that San Bernardino should have a retirees committee similar to what has been done in the Detroit Chapter 9 bankruptcy case.

But San Bernardino's City Attorney James Penman argued in court papers that the Southern California city can't afford the cost.

Detroit "has proposed dramatic reductions to retiree health care benefits and an official retiree committee may make sense for Detroit," Penman said. "Unlike the City of Detroit, San Bernardino has not proposed any such cuts to the health care benefits of its retirees."

With revenues of $1.2 billion, Penman argued, Detroit may be able to afford incurring the cost of an official retiree committee, but San Bernardino, with about 200,000 residents, does not have that kind of financial resources.

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