LOS ANGELES — San Bernardino's city attorney said the California city is on track to exit bankruptcy by the end of the year though two major creditors are trying to extend the process.
Creditors were originally expected to vote on the city's plan to exit bankruptcy Sept. 2, but the California Public Employees' Retirement System and U.S. Bank both filed extensions seeking more time to vote and are now due to respond Friday by 5 p.m.
Attorneys representing Ambac Assurance Corp., the insurer on $52 million in pension obligation bonds, voted in favor of the exit plan contingent on finalizing what it called in a court filing "the definitive documents."
"The parties have not yet finalized or agreed to the form of the definitive documents," Ambac attorneys Paul Aronzon and Thomas Kreller, from Milbank, Tweed, Hadley & McLoy LLP wrote in an Aug. 30 filing. "Nevertheless, as contemplated by the settlement agreement, and in light of the Sept. 2 deadline to vote on the plan, Ambac intends to submit timely its vote accepting the plan."
The city filed its third amended debt adjustment plan on May 27.
In May, City Attorney Gary Saenz told The Bond Buyer its almost four-year-old bankruptcy case could be over by the end of 2016.
Saenz said Wednesday the city still anticipates receiving a confirmation order from U.S. Bankruptcy Judge Meredith Jury by the end of the year with an effective exit date around March.
"It is all contingent on how things go, but that is still our expectation," Saenz said. "Voting has come in overwhelmingly in support of the plan, which helps with regard to confirmation."
A confirmation hearing is scheduled for Oct. 14.
"We are working on resolving the smaller cases such as personal injury claimants, trip and falls, and a case involving one of our police officers," Saenz said. "The more of those we settle, at this time, helps with respect to confirmation."
As for the larger creditors, Saenz said they will not know until CalPERS files on Friday, but he said he does not think the substantive agreement will change much. CalPERS reached an agreement in substance with the city more than a year ago; and an agreement with pension bondholders in May. U.S. Bank, which holds several million dollars of commercial paper issued against city buildings, also had previously reached an agreement with the city.
Saenz said he did not want to speculate on what the delay as for CalPERS or U.S. Bank, but he suspects it is along the lines of issues around what Ambac attorneys described as a "definitive" agreement.
In terms of the agreement with the bondholders, Saenz said in previous interviews the city was able to give the bondholders 40% of what they are owed, rather than the more severe 1% originally proposed, because the agreement allowed them to stretch out payments 20 years.
The city has drafted a 20-year business plan that allows it to feasibly make those payments without the city ending up in bankruptcy again down the road, he said.
"One thing Judge Jury will look at is the feasibility of the confirmation plan," he said. "We believe we found a model that is dependable."
Saenz also ticked off a number of economic development proposals the city is working on. Those efforts are included in the city's 20-year plan.
The pension obligation bond agreement continues a trend of bonds faring worse than pensions in Chapter 9 cases.
Under the settlement, COMMERZBANK Finance & Covered Bond S.A., formerly Erste Europäische Pfandbrief-Und Kommunalkreditbank AG, and municipal bond insurer Ambac Assurance Corporation, agreed to drop their opposition to the city's bankruptcy plan.
The holders of $50 million in pension obligation bonds will receive payments equal to 40% of their debt on a present value basis, discounted using the existing coupon rate, according to city officials.