LOS ANGELES — San Bernardino's pension bondholders have filed a lawsuit in the California city's bankruptcy case seeking equal treatment with the state's largest pension fund.
Erste Europaische Pfandbrief- und Kommunalkreditbank AG and Ambac Assurance Corporation filed the
Attorneys for EEPK, the holders of $50 million in San Bernardino's pension bonds, and Ambac, the bond insurer, pointed to a validation ruling the city obtained from a judge prior to issuing the pension bonds in 2005. In that case, they argue, the city had to establish that the pension bond obligations were similar to the unfunded pension liability owed to the California Public Employees' Retirement System to explain why it didn't need to go to its voters for authority to issue the bonds.
Any payment of the CalPERS pension obligation requires equivalent payment of the bondholder pension obligation portion, according to the filing from law firms Ballard Spahr LLP representing EEPK and Arent Fox LLP representing Ambac. The attorneys argue in the complaint that "the bondholder pension obligation portion and the CalPERS pension obligation portion are separate portions of a single indivisible pension obligation owed by the debtor under the retirement law and CalPERS contract."
In those proceedings, the city was replacing the obligation to the unfunded liability to CalPERS to the obligation to the pension bondholders, said San Bernardino City Attorney Gary Saenz.
"Because they were treated the same for the purpose of the validation suit doesn't mean they should be treated the same in all cases, or the same in bankruptcy proceedings," he said.
Municipal bankruptcy is designed for a city to reestablish itself in order to provide services to its citizens - and the city needs a workforce to provide those services, Saenz said. A pension system is necessary to having a workforce and keeping CalPERS whole is important in that regard, he said.
"If we impair CalPERS, the impairment would be passed on to employees and it would impact our ability to provide services to the community - where impairing the bondholders would not have that result," Saenz said.
Saenz said these were his initial impressions as the city hasn't formally filed a response; and that he relies on the expertise of the outside bankruptcy attorneys it hired in its bankruptcy case.
After missing $13 million in payments to CalPERS in the year after San Bernardino declared bankruptcy in August 2012, the city resumed payments to the pension fund in July 2013, but has not resumed payments on the pension bonds.
Wells Fargo, the pension bond trustee, filed a proof of claim on behalf of itself and the bondholders for $56.8 million in principal and interest payments on Feb. 5, according to the filing. Ambac filed a proof of claim form on the same day for $2.6 million plus interest representing the payments made to bondholders to date. The insurer also filed a claim of $18.1 million for future payments it may be required to pay.
The parties are due in bankruptcy court in Riverside for a status hearing on Jan. 15. U.S. Bankruptcy Judge Meredith Jury set a May 30 deadline for the city to file a plan of adjustment in the case.
