SAN FRANCISCO - Mammoth Lakes, Calif. will become the second California municipality in as many months to file for bankruptcy protection.
The town council voted unanimously Monday to file for protection under Chapter 9 in Federal bankruptcy court after it failed to reach an agreement over a $43 million legal judgment it owes a developer, according to a statement by the town.
The case will be filed in U.S. Bankruptcy Court, Eastern District of California, in Sacramento, said Assistant Town Manager Marianna Marysheva-Martinez.
"We are filing today," she said Tuesday morning.
Mammoth Lakes said it will ask bondholders of $3.4 million of outstanding certificates of participations to extend the terms of the bonds and to slightly reduce the interest rate.
Town officials said in the statement that bankruptcy is only option left to remain solvent after it could not come to an agreement with Mammoth Lakes Land Acquisition, which won a $43 million judgment four years ago against the town, that was due June 30.
Mammoth Lakes, with a population of 8,200 and an annual budget of $19 million, is facing an estimated $2.8 million deficit for the fiscal year that started Sunday. It is best known as the base for the Mammoth Mountain ski resort.
The town was the second municipality in the state, following Stockton, to enter Assembly Bill 506 mediation, which directs local governments contemplating bankruptcy to first negotiate with creditors. The required 60 days of negotiations ended on June 29.
The largest creditor, developer Mammoth Lakes Land Acquisition, declined to participate in the talks, according to the statement.
According to an outline of its plan of adjustment that will be filed with the bankruptcy court, Mammoth Lakes will propose a five-year extension and a .25% reduction to its interest rate on its 2000 certificates of participation. Union Bank is the trustee for the debt.
The plan would also ask the court to restructure the 2004 COPs owned by Citizens Bank to include a three-year extension with no change to the 3.89% interest rate.
Union Bank participated in the mediation, the town said; Citizens Bank did not.
The town has other revenue bonds tied to special taxes that it said will be unaffected by bankruptcy.
City officials said they are considering selling bonds to pay creditors once it emerges from bankruptcy.
In 2008, the Superior Court in Mono County awarded $30 million plus interest and attorney fees to MLLA that sued Mammoth Lakes saying the town breached a contract tied to a development near its airport.
The state Supreme Court last year declined to hear the city's final chance at appeal.
Several preceding negotiations between the town and the developer failed this year and the developer asked a state court for a writ for immediate payment of the full $42 million.
Even though Stockton filed for Chapter 9 protection last week, municipal bankruptcies are still rare in California. The only other municipalities to file are Vallejo in 2008, Desert Hot Springs in 2001 and Orange County, the state's largest bankruptcy case ever, in 1994.