SAN FRANCISCO — Vallejo’s steep road out of bankruptcy has begun to level off, after one of its strongest opponents stopped fighting the California city’s plan to exit bankruptcy.
The retiree committee, which represents former city employees, says it now supports the plan to get out of bankruptcy, after battling for more than two years to protect its members’ health benefits.
As it stands in the preliminary plan, the retirees — along with some union members and general liability claims — are considered unsecured creditors and would be paid between 5% to 20% of their claims out of a $6 million pool.
“The committee made the decision that simply employing blocking tactics for their own sake was something the committee did not want to do,” said R. Dale Ginter, the retirees’ lawyer from Downey Brand LLP.
“In the interest of all of the retirees, it was better for the [bankruptcy exit plan] to be confirmed and [the city] out of bankruptcy and back on the road to fiscal recovery.”
Ginter said the committee believed it could have dragged out the proceedings for years with its arguments, but it would have received little benefit.
The retirees had raised questions about the city’s tentative settlement with Union Bank, the owner of the $45 million of Vallejo’s certificates of participation.
Ginter also noted that the city had said several times that it has yet to cut the retirees’ pension benefits, the implication of which, he said, is that they could.
The bankruptcy exit plan is based on a five-year road map approved by the City Council that tackles $195 million in unfunded pension obligations, cuts payments for retiree health care, reduces pension benefits for new employees, raises pension contributions from current workers, and creates a rainy-day fund.
Vallejo, a San Francisco Bay Area city with a population of around 120,000, filed for bankruptcy in May 2008 due to dwindling tax collections and what it called unsustainable labor contracts. The filing represents the largest municipal bankruptcy in California, and one of the biggest in the country, since Orange County’s in 1994.
Marc Levinson, Vallejo’s bankruptcy lawyer from Orrick, Herrington & Sutcliffe LLP, said the city is also nearing a settlement with its two union groups.
“We have had very good progress with the two unions. While we haven’t reached a deal yet, I think we are there on economic terms,” Levinson said. “There are just a lot of details that have too be worked out.”
All settlements are still subject to a final approval of the bankruptcy exit plan.
Levinson said the city and unions are working through specific issues related to taxes and pensions.
However, Levinson said the city still must deal with other claims in the case.
Vallejo has received more than a thousand claims, both secured and unsecured, worth almost $500 million, according to city officials.
It has already reached tentative agreements with the bondholders impeded by the case, Union Bank, and National Public Finance Guarantee Corp., the insurer of some of the COPs.
Even if the city reaches a deal, the final plan needs to be confirmed by the bankruptcy judge.
On Monday, U.S. Bankruptcy Court Michael McManus in Sacramento approved Vallejo’s disclosure statement that explains in simple terms the plans to get out of bankruptcy so creditors are able to vote on the plan.
Once the vote is complete, McManus will hold a hearing to determine the merits of the plan before giving his final approval.
The next hearing in the case is set for May 9. The case will likely run into July.