San Bernardino Bondholder, Insurer Support Bankruptcy

July 11 (Bloomberg) -- San Bernardino should be allowed to stay in bankruptcy, bond insurer Ambac Assurance Co. and a bondholder owed $50 million said in court papers opposing other creditors’ efforts to strip the California city of federal court protection.

Ambac and Erste Europaische Pfandbrief-und Kommunalkreditbank AG joined San Bernardino in asking a federal judge to overrule objections of the California Public Employees’ Retirement System and the San Bernardino Public Employees’ Association. The objectors have challenged the legality of San Bernardino’s 2012 Chapter 9 bankruptcy filing.

While in bankruptcy, Calpers and other creditors cannot sue the city for failing to pay them. U.S. Bankruptcy Judge Meredith Jury has scheduled a hearing for next month in Riverside, California, to decide whether San Bernardino can remain in bankruptcy.

The city of about 213,000, located about 60 miles (97 kilometers) east of Los Angeles, sought bankruptcy protection on Aug. 1, claiming a cash crisis prevented it from first negotiating with creditors, as required under California law.

This month, lawyers for the city filed a request for summary judgment, asking Jury to allow San Bernardino to stay in bankruptcy “so that the city can continue discussions and negotiations with its creditors.”

The case is In re San Bernardino, 12-bk-28006, U.S. Bankruptcy Court, Central District of California (Riverside).

To contact the reporter on this story: Steven Church in Wilmington, Delaware at schurch3@bloomberg.net

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net