SAN FRANCISCO — The city of Vallejo, Calif., could see its plan to exit bankruptcy sail through a final hearing Thursday with only one objection from two individuals.
The upcoming confirmation hearing is the final chapter in the city’s more than three-year slog to restructure its debts and emerge from one of the largest municipal bankruptcies in more than a decade.
Marc Levinson, the city’s bankruptcy lawyer with Orrick, Herrington & Sutcliffe in Sacramento, said Vallejo has reached agreements on the reorganization plan with all of its unions and only one protest has been filed in court.
Levinson had said a fast confirmation of the final plan, ending with an approval by federal bankruptcy Judge Michael McManus, likely hinged on a deal with the city’s unions.
“The overwhelming support of creditors, as demonstrated by their votes in favor of the plan, is evidence that the city’s vision is shared,” Vallejo’s lawyers wrote in a memo filed this month with the court.
After the city sent out an explanation of the final plan to creditors, 186 accepted it and 15 rejected it. Every impaired class of creditor — those set to receive less than they are owed — voted in favor of the plan, according to court documents. Thus, the city does not need to force the plan on creditors in court.
The two people objecting to the plan complained in a court filing that Vallejo’s plan to reorganize its debts unfairly gives priority to certain creditors. They called it a “totally confusing plan.” The pair had obtained a judgment in a case against the city for failure to pay overtime wages according to federal law.
Under the final plan, the general unsecured creditor claims — those without collateral — are set to be paid out of a pool of $5.9 million. The mostly union members and retirees would get around 20% or less of their original claims.
Many of the general unsecured claims stem from the city’s rejection of collective bargaining agreements with unions during the move to bankruptcy. Vallejo received 969 general unsecured claims totaling $262 million.
Earlier in the year, the city reached tentative agreements with bondholder Union Bank, the owner of $45 million of certificates of participation, and National Public Finance Guarantee Corp., the insurer of a small share of the bonds. Those agreements would be confirmed along with the plan.
Union Bank would be paid 47% less than owed for four series of COPs, the court document said.
According to the city’s agreement with National, part of the debt payments would be deferred a year and interest payments on the deferred amount will be at a rate of 5.25%, which would be 1% to 2% less than the original rate.
The city’s plan leaves debt backed by specific revenues untouched.
Vallejo, a city of 120,000 people, filed for bankruptcy in May 2008 due to dwindling tax collections and what it called unsustainable labor contracts.
It is the largest municipal bankruptcy in California, and one of the biggest in the country, since Orange County’s in 1994.
The bankruptcy exit plan is based on a five-year road map approved by the City Council. It 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.
