The bankrupt city of San Bernardino, California has been sued by one of its bondholders for favoring pensioners over creditors during its bankruptcy.
San Bernardino has largely kept up with its payments to CalPERS. But the lawsuit claims the city has not extended equal favor to its bondholders.
Pension-bond holder Erste Europaische Pfandbrief- und Kommunalkreditbank AG sued San Bernardino yesterday in federal bankruptcy court in Riverside, California, claiming equal status with Calpers. The company, which holds about $50 million in pension obligation bonds, didn’t name Calpers in the suit.
“Any payment of the Calpers pension obligation portion requires equivalent payment of the bondholder pension obligation portion,” the company, a unit of Frankfurt-based Commerzbank AG (CBK), said in the filing.
Cities often issue bonds to raise money to bolster their pension obligations. In San Bernardino’s case, the money was used to fill a hole in its pension fund, which is administered by Calpers. The city also makes regular payments on behalf of its employees to Calpers, which in turn pays retired city workers.
The lead bankruptcy attorney for the city, Paul Glassman, referred questions to San Bernardino’s elected city attorney, Gary Saenz, who didn’t immediately respond to an e-mailed request for comment on the suit.
San Bernardino filed bankruptcy in 2012. Although it stopped paying CalPERS for a period of a few months, it has since resumed payments so that no pension benefits would be cut as part of its bankruptcy.