San Bernardino plan reflects settlements with most principal creditors

By Caroline Salls

Pittsburgh, March 31 – The City of San Bernardino, Calif., has reached settlements with “most of its principal creditors,” and those settlements have been incorporated into an amended Chapter 9 plan of adjustment, according to documents filed March 31 with the U.S. Bankruptcy Court for the Central District of California.

In addition to the settlements, the city said it has made “significant progress at restructuring the delivery of municipal services.”

Among the settlements reached with creditors are an agreement with the California Public Employees’ Retirement System (CalPERS) regarding the city’s continued funding of employee pension benefits; a settlement with the official retiree committee appointed in San Bernardino’s case regarding the continued funding of retiree pensions and the restructuring of retiree health benefits; settlements with the police, firefighters and other employee unions; and settlements with the holders of city-issued bonds.

San Bernardino said it also now plans to annex into the San Bernardino County Fire Protection District and have county fire provide fire suppression and emergency medical response services instead of the current city fire department.

“The plan represents a major step forward for the city in its efforts to exit bankruptcy and breathe new life into the city’s economy,” San Bernardino said in court documents.

“All of the city’s principal creditor constituencies that initially opposed the city’s restructuring efforts now support the plan,” including police, fire and other unions, the retiree committee, CalPERS and the holder of the city’s bonds.

Settlement terms

Specifically, under a comprehensive settlement with CalPERS, the unions and the retiree committee, San Bernardino said it will continue to make its payments to CalPERS, “thereby preserving, not reducing, employee and retiree pension benefits.”

As part of those settlements, the city said employees agreed to contribute more to their pension plans and to make other employee benefit concessions, and the retiree committee agreed to the restructuring of retiree health benefits changes “all to help the city dig out from its financial insolvency while preserving pension benefits.”

In addition, San Bernardino said the holders of its pension obligations recently agreed to “take a substantial reduction on their claims.”

Because the plan and financial model on which it is based “dedicate as much as the city’s resources as they can to providing municipal services to city residents to reach reasonable levels of services over time,” San Bernardino said very little will be left to pay creditor claims.

Creditor treatment

Under the plan, the city will distribute 1% to holders of general unsecured claims.

Holders of refunding bond claims and refunding certificate of participation claims will be paid in accordance with relevant indentures and trust agreements.

Harriman project and pavement project secured claims will be paid in accordance with related project financing documents.

The collateral securing the city’s payment obligations under a Police Station AC financing agreement will be relinquished to Western Alliance, and the city will have no further obligation under the financing agreement. Western Alliance will have a general unsecured claim for any unpaid amounts due under the financing agreement.

Burgess secured claim documents will be amended to extend the maturity date until 2022, and a balloon payment will be amortized over that three-year period.

The city will continue to apply restricted revenues to pay restricted revenue bond and notes payable obligations, including payments of $3.4 million due on 1998 refunding certificates of participation and $1.7 million due on the California State Water Resources Control Board revenue bond claim.

CalPERS will be paid in accordance with a settlement, which provides for payment of some arrearages and additional administrative costs to CalPERS and a covenant not to impair CalPERS under the plan.

In connection with the claims of Public Agency Retirement System (PARS) participants under PARS plans, the city proposes rejection of the PARS plan and a waiver by the city of any and all claims to the funds held within specified trusts as of the date of termination of the PARS plans. Also, each PARS participant will have a general unsecured claim for the unfunded liability owed by the city under each PARS plan.

Under a pension obligation bond settlement, the city will make installment payments over a 30-year term, starting one year after the plan is confirmed. The city will make payments of $1 million to $2.5 million per fiscal year until 2046 instead of the $3.3 million to $4.7 million per fiscal year owed under the terms of the 2005 pension bond agreement.

Holders of convenience class claims will receive the lesser of the amount of their claim and $100.

The city’s disclosure statement hearing is scheduled for April 27.

San Bernardino filed for bankruptcy on Aug. 1, 2012. The Chapter 9 case number is 12-28006.

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