LOS ANGELES -- Bondholders impacted by the San Bernardino, Calif. bankruptcy are fighting an attempt by the California Public Employees’ Retirement System to obtain primacy over other creditors.
Bond insurers Ambac Assurance Company and National Public Finance Guarantee Corp. joined Wells Fargo, the trustee for the city’s pension obligation bonds, in a motion filed Monday that challenges arguments made by CalPERS that it should be given relief from an automatic stay preventing it from filing a lawsuit against the city in state court for $6.9 million in missed payments.
Attorneys for the three entities argued that CalPERS is no more than another “unhappy creditor whose plea for special treatment is unsupported by law or facts and, if granted, would permit the single largest unsecured creditor in the case to seek advantageous treatment to the detriment of the city and all of its other creditors.”
The motion referred to a ruling by Judge Christopher Klein in the Stockton, Calif. bankruptcy rejecting a relief from stay sought by retirees seeking protection for healthcare benefits.
Klein said in his ruling that “the bankruptcy policy of favoring a collective proceeding to work out a comprehensive solution to municipal insolvency counsels against permitting non-bankruptcy litigation that would materially interfere with the reorganization process.”
San Bernardino is the first California city to not remain current on pension payments while in bankruptcy.
Ambac and National Public Finance Guarantee filed objections in the Stockton case because the city has made its CalPERS payments while proposing severe losses to bondholders. In their motion in the San Bernardino bankruptcy, they argue the decision facing the judge of “balancing the harms” to creditors would weigh “overwhelmingly” against CalPERS.
According to the motion, CalPERS manages a total pension portfolio of approximately $242 billion, while the city’s $143 million in pension assets comprise a mere 0.3% of that total. The city proposes to defer up to $20 million of that total through June 30, 2013, according to the pendency plan.
San Bernardino has about $90 million of outstanding pension obligation bond debt.
The pendency plan would “defer” $3.37 million in payments the city owes on its pension bonds for fiscal 2012-13.
“The city’s proposed deferral would not negatively affect either of the city’s two pension plans, much less the entire CalPERS system as CalPERS contends,” the motion argues.
Bankruptcy attorneys following the case have said that CalPERS has much to lose, because other cities could follow suit by seeking to modify agreements with the pension fund or by seeking bankruptcy protection.