A U.S. Justice Department trustee last week appointed a committee to represent retirees who hold the biggest claims against the bankrupt city of Vallejo.

The San Francisco Bay Area city owes retirees more than $200 million in unfunded pension and health care benefits. By comparison, it owes about $49 million to Union Bank of California, the letter of credit provider that now holds the vast majority of its outstanding bonds.

The formation of the committee follows a dispute between the city and its unions over who would represent the retirees. U.S. Bankruptcy Court Judge Michael McManus earlier this year rejected the unions’ bid to represent retirees in the case, which is the biggest municipal bankruptcy since Orange County in 1994.

The city and its unions have fought over nearly every move in the case thus far. The unions dispute Vallejo’s contention that it is bankrupt. McManus ruled Sept. 5 that the city was indeed bankrupt. The unions have appealed that ruling.

The two biggest municipal bond market parties to the case have sided with Vallejo in opposing the unions’ appeal.

“Permitting the unions to proceed with their appeal will not advance the ultimate termination of the underlying litigation,” Union Bank of California said in its answer to the union ­motion.

“Quite to the contrary, all that can reasonably be expected … is that many months would now be consumed by the parties dealing with and waiting for resolution of the appeal rather than addressing the underlying critical financial condition of the city,” wrote bank lawyers Robert Kaplan and Nicolas DeLancie of Jeffer, Mangels, Butler & Marmaro LLP.

Bondholders remained mostly silent during eight days of hearings on the city’s solvency this summer. Union Bank holds about $49 million of the city’s $53 million of outstanding general fund debt. Now, both Union Bank and Wells Fargo Bank, the trustee on the bonds, have weighed in to favor moving the case along since the unions’ appeal.

In its filing, Union Bank said it cannot renegotiate the terms of the city’s outstanding certificates of participation until Vallejo resolves its labor disputes, allowing it to create a long-term budget plan.

Wells Fargo said in its filing that the unions had “no grounds” for appealing the bankruptcy ruling.

“Most of the unions’ argument boils down to the assertion that the court made mistakes in reaching its findings of fact,” which should not be subject to appeal, the bank said in a filing. Wells Fargo is represented by Mike Buckley and Renee Feldman of Reed Smith LLP.

Vallejo has asked McManus to allow it to reject its labor contracts. He scheduled hearing on the motion for Dec. 2.

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