Vallejo officially exited from Chapter 9 bankruptcy protection on Tuesday after finally satisfying the conditions of its plan that was approved in early August by a bankruptcy judge.
The city had spent the last several weeks hammering out final contract details with its largest creditor, Union Bank, which holds city debt as a consequence of being a letter-of-credit provider for certificates of participation.
“The City Council, city staff, and the community have worked together to place the city on a sustainable financial foundation and poised for growth,” city manager Phil Batchelor said in a statement.
Batchelor noted that the city has passed balanced general fund budgets and increased its reserves in each of the past three fiscal years.
As part of the exit plan, Vallejo also began paying creditors, a provision included in its fiscal 2012 budget.
The working-class San Francisco Bay-area city, which has a population of about 120,000, filed for bankruptcy in May 2008 after three years of budget deficits caused by dwindling tax collections and what officials called unsustainable labor contracts.
It is the largest municipal bankruptcy in California since Orange County’s in 1994.
The city has spent $12 million on its bankruptcy.
In the first week of August, Judge Michael McManus in Sacramento signed the order confirming the debt-restructuring plan, which will slash some bondholder principal by almost 50% and unsecured claims by 80% or more.
The final restructuring plan calls for Union Bank to take a 47% haircut on four series of general fund-supported COPs.
Part of Vallejo’s debt payments to National Public Finance Guarantee Corp., an insurer of a small share of the bonds, will be deferred a year with an interest rate of 5.25%, which is 1% to 2% below the pre-bankruptcy rate.
General unsecured creditor claims, those without collateral, will be paid out of a pool of $5.9 million over two years. The claimants, mostly union members and retirees, will get paid roughly 5% to 20% of their initial claims.