San Bernardino Bankruptcy Exit Remains Elusive

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LOS ANGELES — As San Bernardino heads into the third anniversary of its bankruptcy filing, battles with bondholders and its firefighters union signal an exit isn't near.

The city presented its bankruptcy exit plan to U.S. Bankruptcy Judge Meredith Jury on May 30. It has been negotiating with creditors regarding the terms of the plan of adjustment ever since. Court hearings are scheduled through Oct. 28 in the case. The next status hearing is slated for Sept. 8.

The city announced during a July 30 status hearing that it had reached an agreement with its police union once again. The parties reached a tentative agreement in August 2014, only for it to fall off a few months later.

The City Council and San Bernardino Police Officers Association will vote on the new agreement; if the votes are in favor, the agreement would be incorporated into the city's plan of adjustment.

The city remains in negotiations with five other bargaining units that represent the firefighters and other city workers, according to filing made by Paul Glassman, a partner with Stradling, Yocca Carlson & Rauth, who represents the city in the bankruptcy.

After repeated failures to reach agreements with firefighters about cutting costs -- and an exodus of firefighters that has put the city at risk - city leaders made a decision to put out a request for proposals a few months ago to outsource fire services.

Jury ruled against a motion by the firefighter's union to try to prevent the city from outsourcing fire services on July 15.

The city received proposals from San Bernardino County Fire District, Centerra Group, LLC, and from the interim fire chief for reorganization of the existing fire department. The city hired a consultant to review the proposals and hasn't made a decision on which one to accept, according to Glassman's status report filing.

Erste Europaische Pfandbrief- und Kommunalkreditbank AG and Ambac Assurance Corporation, the holder and insurer of $50 million in pension obligation bonds, have appealed a ruling rejecting their motion to have the bonds treated on par with the California Public Employees' Retirement System, which is receiving nearly full recovery on pension payments.

Bondholders are challenging the city's offer of less than 1% recovery on the bonds in its adjustment plan.

The city views the bonds as "unsecured obligations of the city with no special payment priority," according to Glassman's filing.

The Bankruptcy Appellate Panel for the Ninth Circuit granted a delay to Oct. 22 for the opening brief on the appeal while the POB attorneys push the city for needed documents.

The city has provided almost 1,000 pages of documents to bondholders as part of discovery related to the bankruptcy case, Glassman said in the filing.

The bond attorneys contend in a filing that of 21 categories of priority documents the attorneys have requested, the city has only responded to four.

"The POB attorneys are concerned about the pace and substance of the debtor's production to date," said Vincent J. Marriott, of Ballard Spahr LLP and Linda Dakin-Grimm of Milbank, Tweed, Hadley & McCloy, attorneys representing EEPK and AMBAC, in the filing.

The bondholders' attorneys urged the city to ratchet up its response rate with the objection deadline rapidly approaching or said they would be forced to burden the court with formal discovery disputes. Until now, the bond attorneys have handled requests through an informal process, according to the filing.

 

 

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