San Bernardino will pay the holders of its pension obligation bonds 40 percent of what they’re owed, reducing the total payments to one of its largest creditors by about $45 million, according to a settlement between the bankrupt city and those creditors.
The deal came after the city, which filed for bankruptcy in 2012, pushed for a year for a plan that would pay 1 percent to the bondholders. Meanwhile, those bondholders pursued a lawsuit to get something like the 100 percent repayment that the city agreed to for the California Public Employees’ Retirement System.
“The settlement will end the costly legal battles between the City and the settling creditors over confirmation of the City’s Chapter 9 Plan of Adjustment, as well as how much the creditors are to be paid,” City Attorney Gary Saenz said in a written statement.
Indeed, the last year of bankruptcy hearings have often featured a clash between “Wall Street” and the city, with a greater battle over the city’s plan to exit bankruptcy widely expected if some settlements weren’t reached.
According to the nine-page settlement agreement, those creditors — the Luxembourg-based bank known by its initials, EEPK, and Ambac Assurance Corporation — drop their litigation against the city and release it from any future liability related to the pension obligation bonds.
They also agree to support the city’s disclosure statement — an amended version of which is due to bankruptcy court Wednesday, and which they had earlier objected to parts of.
The city agrees to pay its debt over a 30-year period beginning one year after U.S. Bankruptcy Judge Meredith Jury approves its exit from bankruptcy.
That allows for additional investment in public safety of about $2 million per year, the city said in a news release.
The debts spring from bonds the city issued in 2005 to pay for its pension obligations.
The settlement was reached in mediation under Judge Gregg Zive. The City Council approved the agreement in closed session March 21, with Saenz announcing at that meeting that a settlement was reached but not releasing the terms until Tuesday evening.