Nebraska Sen. Paul Schumacher sponsored the bill that would prioritize bondholders over pensioners in a Chapter 9 bankruptcy.

CHICAGO - A Nebraska bill to favor bondholders over pensioners in the event of a municipal bankruptcy has advanced to the floor of the Legislature.

The Banking, Commerce and Insurance Committee approved Legislative Bill 67 last week after the measure's first public hearing Wednesday, sending it to the floor. Nebraska has a unicameral, or single chamber, legislature.

The Nebraska Bankers Association is pushing for LB 67 to be made a priority bill, which would help ensure a full legislative debate before the session ends in June, according to Peg Jones, a legislative aide for bill sponsor Sen. Paul Schumacher, R-Columbus. The deadline for naming priority bills is this week, according to Jones.

The legislation would give general obligation bondholders a statutory lien to ensure their payment priority over all other creditors, including pensioners, in the event of a municipal bankruptcy.

Schumacher said it's an effort to address on a state level the national uncertainty about the status of pensions versus bond debt following the bankruptcies of Detroit and Stockton, Calif.

A similar measure also sponsored by Schumacher died in the Legislature last year.

A lobbyist for the bankers association was the sole supporter of LB 67 during last week's public hearing. The measure attracted several opponents, including officials from Omaha and Lincoln, the state's largest cities, would argue that the question of creditor preference should be left up to a federal bankruptcy judge.

A companion bill, LB 66, which would require issuers to disclose on page one of their offering documents that bondholders do not have priority over pensioners, is likely to remain on hold while lawmakers tackle LB 67.

Schumacher said he considers it a kind of back up if LB 67 fails, saying issuers should be required to either give bondholders priority or inform investors of their uncertain position up front.

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