BRADENTON, Fla. — Hillview, Ky., does not intend to restructure its bonds as part of its Chapter 9 bankruptcy case, its city attorney said.
The city filed for bankruptcy to stop thousands of dollars in interest amassing daily because of an $11.4 million judgment against the municipality, City Attorney Tammy Baker told The Bond Buyer in an email.
"What the bankruptcy has allowed is breathing room for the city," she said. "The interest has been stopped."
Baker said that with interest payments stopped, the Chapter 9 filing gives Hillview a "fixed number" on which to develop a plan for dealing with the for breach of contract judgment won by Truck America Training LLC.
Hillview owes $1.39 million on outstanding general obligation bonds issued in 2010, and $1.78 million as part of a 2010 pool bond issued by the Kentucky Bond Corp.
"The city does not intend to restructure any bonds through the filing," Baker said. "In fact, we are of the belief that such a restructuring could not be done."
She did not explain why the bonds could not be restructured.
The small city about 17 miles south of Louisville filed a petition for reorganization on Aug. 20, which immediately imposed an automatic stay that stopped all of its payments to creditors.
"The main reason the city filed for bankruptcy is to halt the crushing interest [of] $3,759 daily from accruing while we develop a plan," she said.
Hillview must be insolvent in order to qualify for the Chapter 9 process, and the city did receive a "going concern" opinion from its auditor in fiscal 2014 because of the $11.4 million judgment.
Last week, Truck America attorney Brian Meldrum called the city's decision to seek bankruptcy relief because of the judgment "tragic and unnecessary."
Meldrum said the company had made numerous offers to take a lower settlement, including an offer the night before Hillview filed for bankruptcy to accept approximately 40 cents on the dollar to settle the judgment.
The city attorney did not respond to a question asking if the lower settlement would push the city into insolvency.
Other municipalities have filed for Chapter 9 protection in the wake of a court judgment, according to bankruptcy expert James Spiotto, managing director of Chapman Strategic Advisors.
Boise County, Idaho filed for bankruptcy in 2011 after losing a court case that awarded a $4 million judgment plus $1.4 million in attorney's fees. Mammoth Lakes, Calif., filed in 2012, after losing a court case to a developer that resulted in a $43 million judgment.
Neither community ended up filing a plan of adjustment. In Boise County, the court determined that the county was not insolvent and had the funds to satisfy the judgment, while Mammoth Lakes reached an undisclosed settlement and the case was dismissed.
While Hillview said it opted to resolve the adverse judgment in bankruptcy court, it took a toll on the city's GO bond rating.
On Friday, Standard & Poor's cut its rating five notches to B-minus from BB-plus, and placed the lower rating on CreditWatch with negative implications pending a determination by the bankruptcy court on the city's petition.
Because of the bankruptcy filing, S&P said it considers the city's access to the capital markets weaker.
