Judge Rejects San Bernardino Bankruptcy Plan Draft

Over the holiday weekend, a judge rejected San Bernardino’s bankruptcy plan for the second time.

The plan is controversial for bondholders because they take the brunt of the pain; the city is repaying as little as one penny on the dollar for some debt classes.

Pensions will remain intact under the current plan, with very few exceptions.

More details from the Wall Street Journal:

U.S. Bankruptcy Judge Meredith Jury Wednesday rejected—for a second time—the city’s proposal to cut debts, saying it didn’t contain enough information for bondholders, retirees who face health-care cuts and others to vote on the proposal.

Several groups protested the bankruptcy-exit plan’s wording, arguing that city leaders should explain why they can’t pay a class of debt valued between $130 million and $150 million more than 1 cent on the dollar. That includes $52 million owed to bondholders who extended money to the city so it could pay pensions.

[…]

San Bernardino officials plan to continue making full payments into the pension fund run by California Public Employees’ Retirement System, also known as Calpers, which distributes that money to thousands of retired city workers.

City officials decided to make pension payments, even though federal judges in charge of Detroit and Stockton’s bankruptcy cases ruled that pensions could indeed be cut. In its plan, San Bernardino said it considered breaking ties to Calpers but determined that it wasn’t realistic if the city wanted to attract workers.

The judge will consider the next draft of the plan at a March 9 hearing.

Photo by Joe Gratz via Flickr CC License