LOS ANGELES — The bondholders and insurer in the San Bernardino, Calif. bankruptcy case are both criticizing what they describe as the city's lack of coherent financial disclosure.
"The revised disclosure statement still falls woefully short of containing the 'adequate information' to which creditors are entitled before being asked to vote on the revised plan," Ambac Assurance Corp. attorney Thomas Kreller, a partner in the Los Angeles office of Milbank, Tweed, Hadley & McCloy, wrote in a filing ahead of a status hearing scheduled for Dec. 23.
The Dec. 2 San Bernardino terrorist massacre has overshadowed the city's efforts to exit bankruptcy. San Bernardino and adjacent Redlands both declared a state of emergency seeking reimbursement from the federal government for costs associated with the attack.
A few weeks before the terrorist attack, Allen Parker, the city's city manager, who has battled with Mayor Cary Davis, resigned from his position accepting a $221,976 severance package.
The City Council will discuss a proposal Monday to appoint Police Chief Jarrod Burguan as interim city manager in January with Mark Scott, currently Burbank's city manager, taking over as interim in February, according to the agenda.
When the city filed its plan to exit bankruptcy and its disclosure statement on May 29 after nearly three years in bankruptcy, it drew objections from both Ambac and Erste Europäische Pfandbrief-und Kommunalkreditbank AG, the bondholder.
Ambac is the bond insurer on $50 million in pension obligation bonds held by EEPK.
Attorneys for both filed further objections to the city's financial disclosures in response to the amended disclosure statement the city filed on Nov. 25.
Kreller questioned how the city was able to decide on its "draconian" plan of only paying 1% owed on the pension obligation bonds and general unsecured claims when its financial disclosures are so "murky."
EEPK Attorney Vincent Marriott, III, a partner with Ballard Spahr, LLP, said the city fails to explain an additional $200 million in expenses and reserves mentioned in supplemental filings.
The new items include a $24 million bankruptcy reserve fund, an additional $14 million for police fleet replacement and $159 million for the "police services master plan."
Despite what Marriott called the "enormous size" of these new spending and reserve items, he said the amended disclosure statement only provides partial or cursory explanations.
"The enormous size of these changes calls into question the validity of the city's financial projection methodology, and certainly warrant clear disclosure in the body of the amended disclosure statement and significant analysis and explanation by the city," Marriott wrote in the filing.
The city's filing, made by attorney Paul Glassman, acknowledges that it "provides for substantial impairment of unsecured claims."
Holders of $50 million of unsecured POB claims would receive payments of $655,000 plus interest over time, and holders of general unsecured claims between $130 million and $150 million will receive a pro rata share of $1.3 million after the plan becomes effective, according to the city's filing.
"The city believes that the plan provides the greatest and earliest possible recoveries to holders of claims while preserving necessary city services and operations," Glassman said in the filing.
Any alternative debt adjustment or restructuring would result in additional delay, uncertainty and expense, Glassman said in encouraging creditors to support the plan.
Bankruptcy Judge Meredith Jury will have to find the city has submitted a plan capable of insuring it doesn't end up insolvent down the road before she will allow the city to exit bankruptcy.