RIVERSIDE, Calif. — San Bernardino could be out of bankruptcy by the end of the year, City Attorney Gary Saenz said.
U.S. Bankruptcy Judge Meredith Jury on Wednesday set a hearing 45 days ahead that she said could be the tentative confirmation hearing.
“I don’t want to say for sure at this point that it is the ‘tentative confirmation hearing,’ because there are still a few issues to be resolved, but it seems like most of the larger issues have already been settled,” Jury told the court.
The city has reached agreements with all of its major creditors, which include the retirees, California Public Employees' Retirement System, and police and fire unions.
The last major settlement agreement was reached with the city’s pension obligation bondholders a month ago.
The confirmation hearing was set for mid-September, Saenz said. After that would come the confirmation effective date, he said.
“That could get us out of bankruptcy by the end of the calendar year,” he said.
Saenz added that it was nice to hear from the judge that the case took the amount of time it should have, because there have been so many comments made about how much longer it took San Bernardino than Detroit or Stockton. The city filed for bankruptcy in July 2012.
“This case has gone at speed it has had to go,” Jury said. “We have confirmation in view. We will get there when we get there. We are not Detroit and we are not Stockton. The fact it has taken this long to get to confirmation has been expected.”
Saenz said the reason it took longer is that the city worked to reach settlement agreements with all of the creditors, rather than springing cramdowns at the end.
“We wanted to reach settlements ahead of time, rather than have long evidentiary hearings,” he said. “I believe it was more cost-effective this way.”
Negotiating agreements that both sides could agree to brings certainty for both sides, rather than rolling the dice on what the judge might decide, he said.
In terms of the agreement with the bondholders, Saenz said the city was able to give the bondholders 40% of what is owed, rather than the more severe 1% originally proposed, because the agreement allowed them to stretch out payments 20 years.
The city has drafted a 20-year business plan that found it would be able to feasibly make those payments without the city ending up in bankruptcy again down the road, he said.
“One thing Judge Jury will look at is the feasibility of the confirmation plan,” he said. “We believe we found a model that is dependable.”
The pension obligation bond agreement continues a trend of bonds faring worse than pensions in Chapter 9 cases.
Under the settlement, COMMERZBANK Finance & Covered Bond S.A., formerly Erste Europäische Pfandbrief-Und Kommunalkreditbank AG, and municipal bond insurer Ambac Assurance Corporation, agreed to drop their opposition to the city's bankruptcy plan.
The holders of $50 million in pension obligation bonds will receive payments equal to 40% of their debt on a present value basis, discounted using the existing coupon rate, according to city officials.
