The largest creditors in San Bernardino, Calif.’s Chapter 9 bankruptcy are taking opposing positions on a decision that will determine the city’s eligibility to be in bankruptcy.

Bondholders and insurers filed documents last week supporting San Bernardino’s efforts at seeking bankruptcy court protection. The California Public Employees’ Retirement System and the San Bernardino Public Employees Association have come out in opposition.

Ambac Assurance Co., Erste Europäische Pfandbrief-und Kommunalkreditbank AG and Wells Fargo NA filed a joint document in support of the city’s eligibility for bankruptcy ahead of an interim hearing slated to be held Wednesday before U.S. Bankruptcy Judge Meredith Jury.

The trio – referring to themselves as the POB (Pension Obligation Bond) creditors – urged the court in a filing to grant summary judgment in favor of the city on Chapter 9 eligibility; overrule in their entirety the objections to eligibility filed by the SBPEA, CalPERs, and other creditors; and enter an order of relief.

The so-called POB creditors are interested parties, because of their roles with respect to the city’s issuance of $50.4 million in taxable pension obligation bonds to refund the city’s obligations to CalPERs relating to municipal employees’ pension benefits, according to the filing.

Battles between the bondholders and the pension fund are playing out at opposite ends of the state.

San Bernardino, a southern California city that filed for bankruptcy protection on Aug. 1 has moved to impair Calpers in the bankruptcy – the first bankrupt California city to do so. Stockton, in Northern California, which also filed for bankruptcy protection last summer, was granted eligibility to be in bankruptcy earlier this year.

The two cities are the first cities to test a state law requiring municipalities to enter mediation with creditors before they file bankruptcy. Stockton entered mediation prior to filing, while San Bernardino, claiming fiscal emergency, went directly to the bankruptcy court without undergoing mediation.

In both cities, the state’s pension fund has been battling with attorneys representing bondholders. Calpers claims that it cannot be impaired under California law. In Stockton, city leaders have kept up on pension fund payments, which means a larger haircut for bondholders. In San Bernardino, the city has missed approximately $13 million in payments to the pension fund — and indicated earlier this year it does not intend to make up those payments.

Creditors have until Aug. 3 to file documents opposing San Bernardino’s eligibility to be in bankruptcy.

Jury is slated to rule Aug. 28 on whether the city is eligible for bankruptcy court protection during a summary judgement hearing.

Calpers and the city employee’s union have disputed the city’s eligibility on two of the five elements of eligibility set in bankruptcy code, according to the city’s filing. SBPEA argues that the city has not met the eligibility requirements while Calpers argues that the city has not satisfied the element regarding the city’s “desire to effect a plan.”

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