LOS ANGELES -- A bond insurer facing a huge loss in San Bernardino's bankruptcy case is objecting to the city's proposed plan of adjustment.
"The long-awaited plan is a hodgepodge of unimpaired classes and settlements in various stages - some finalized, some announced but not yet documented, and some that are hinted at, but appear to be more aspirational than real, at this point," the attorney representing Ambac Assurance Corp., Paul Aronzon of Milbank, Tweed, Hadley & McCloy LLP, said in the court filing.
The city filed the plan of adjustment needed to exit bankruptcy on May 30, nearly three years after it entered bankruptcy.
Ambac insures $50 million in pension obligation bonds held by Erste Europäische Pfandbrief-und Kommunalkreditbank AG.
EEPK's attorneys led by Vincent Marriott, III, a partner with Ballard Spahr LLP, made arguments similar to Ambac's in a separate filing objecting to the disclosure statements.
The city proposed "an incomplete set of solutions" based upon "internally inconsistent, and stale, data", according to Marriott's filing.
Since the plan was filed, the city has been trying to work out a plan to outsource fire services and negotiate contracts with police and other city employees.
City leaders voted earlier this month to outsource fire services to the San Bernardino County Fire District for an estimated savings of $12 million a year, according to a status report filed Sept. 9 by Paul Glassman, the city's bankruptcy attorney. The city also reached a final agreement with the San Bernardino Police Officers Association on Aug. 7.
Ambac's attorneys argue that the anticipated savings from outsourcing fire services and other revenue sources were not considered in calculating the impairment to the pension bondholders. The insurers' attorneys say the city has not justified the need for $185 million in capital investments to the city's infrastructure and failed to include $3.9 million in income from the sale of assets to be transferred to the city from its redevelopment successor agency.
The most remarkable feature of the plan is the proposed draconian impairment of both the pension obligation bond claims and general unsecured claims, on which the city has proposed to pay roughly 1%, Ambac's attorneys said.
EEPK's attorneys argue that if the city had utilized its ability to raise sales taxes or even parking taxes it would be able to repay the POB debt in full or at least substantially more than the 1% offered.
The severity of the discount warrants explanation, but "nowhere does the disclosure statement even attempt to articulate how or why the city formulated the oppressive treatment it proposes for these classes," Ambac's attorneys argue in the filing.
Based on that alone, the Ambac attorneys argue the disclosure statement should not be approved.
"In short, the city must be held to its twin burdens of both disclosure and proof that its plan endeavors to pay creditors as much as the city can reasonably afford, not as little as the city thinks it can get away with," Aronzon said in the filing. "The city can and should do better for its creditors — and indeed must do so if its plan is to be confirmed."
City attorney Gary Saenz told the Bond Buyer when the plan was filed that it didn't consider the impairment proposed for the pension bonds unreasonable given the city's financial circumstances.
U.S. Bankruptcy Judge Meredith Jury will hear arguments on the adequacy of the disclosure statement during an Oct. 8 hearing.