San Bernardino Nears Accord With Top Creditor Calpers

San Bernardino, the bankrupt Southern California city, has a tentative agreement with its biggest creditor, the California Public Employees’ Retirement System, that should help it in talks with others, the city’s lead bankruptcy attorney said.

“A potential settlement between the city and Calpers will have a material positive impact” on reaching agreements with other creditors in mediation, the lawyer, Paul Glassman, said yesterday at a hearing in Riverside, California. “The agreement is not in final form,” he said.

A deal with Calpers would be a breakthrough in resolving the city’s bankruptcy, U.S. Bankruptcy Judge Meredith M. Jury said. Resolving what the city must pay Calpers would tell other creditors “how much of that pie is left for divvying up,” she said.

Since filing for bankruptcy in August 2012, the city has been mired in court fights with its unions and Calpers, which it owes about $143 million, according to court papers.

The battles have been so bitter that one creditors’ law firm was kicked out of the case because it hired an attorney away from another creditor’s firm. Last year, when Jury appointed U.S. Bankruptcy Judge Gregg Zive as mediator, the city and Calpers couldn’t agree on which disputes to address.

‘The Foundation’

Success in mediation with Calpers, the biggest U.S. public pension fund, “lays the foundation for negotiations between the city and other parties,” San Bernardino officials said in a March 12 court filing.

Calpers has accused the city of hiding cash in off-book accounts and of withholding financial information. Last year, the fund said the city owed it about $13 million in back payments that it’s required to contribute to employees’ pensions.

At yesterday’s hearing, a firefighters’ union tried unsuccessfully to begin a new round of litigation over the city’s plan to cancel its labor contract. Jury refused to schedule a hearing on the legality of the proposal, saying it might interfere with mediation.

In a status report filed March 11 with the court in Riverside, the firefighters said they had made no progress in seven mediation sessions.

Quick Release

After Calpers, the next-biggest debt is owed to investors who hold about $46 million in pension obligation bonds. An attorney for those bondholders and their bond insurer, Ambac Assurance, told Jury the city must quickly release details of its deal with Calpers so other creditors can know how to respond.

“It is important that others understand what this deal is,” said the attorney, David Dubrow. “The city knows what this deal is. Calpers knows.”

Glassman, the city’s lawyer, said any details about the deal should be discussed only in the mediation sessions, which are confidential and cannot be revealed, even to Jury, without permission from Zive.

San Bernardino, a city of about 209,000 people some 60 miles (97 kilometers) east of Los Angeles, was the third California city to file for bankruptcy in a three-month span in 2012. The city cited a fiscal emergency brought on by a $46 million budget shortfall caused in part by the real estate crisis.

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

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