Judge Michael McManus of the United States Bankruptcy Court, Eastern District of California, has approved the restructuring plan for the City of Vallejo (the “City”), clearing the way for the City to emerge from Chapter 9 bankruptcy. The City filed for bankruptcy protection in May 2008, claiming it could no longer maintain normal operations under its crushing budget deficits and dwindling revenues. The case represented the largest municipal bankruptcy filing since Orange County’s bankruptcy in 1994.
Under the approved restructuring plan, Union Bank, who owns $45 million of the City’s certificates of participation (“COPs”), will receive approximately 53% of the principal and interest payments otherwise due to the bank. In addition, payments to National Public Finance Guarantee, Corp., the insurer of a portion of the COPs, will be deferred for a year and paid at a lower interest rate. Bonds backed by specific revenue streams will remain unaffected under the restructuring plan.
Unsecured creditors, whose claims total approximately $262 million, will receive only a small percentage of the amounts claimed, which moneys will be paid over a two-year period from a fund of $5.9 million. The restructuring plan includes cuts to retiree health care, reduced pension benefits for new employees, and increased contributions from current municipal employees.