Cracked tarmac is seen in the parking lot of a largely abandoned shopping mall in San Bernardino, California in this January 23, 2015 file photo. (Reuters/Lucy Nicholson/Files)
By Tim Reid
Tue Mar 17, 2015 – 10:52pm EDT
Los Angeles —
(Reuters) – The southern California city of San Bernardino has defaulted on nearly $10 million in payments on its privately placed pension bond debt since it declared bankruptcy in 2012, according to documents seen by Reuters.
In addition, the city has not negotiated with its bondholders since September, according to a person familiar with the stalled negotiations.
The missed payments illustrate the trend among cities in bankruptcy to favor payments to pension funds over bondholder obligations, which has increased the hostility between creditors and municipalities.
San Bernardino declared last year that it intends under its bankruptcy exit plan to fully pay Calpers, its biggest creditor and America’s largest public pension fund with assets of $300 billion.
The city continues to pay its monthly dues to Calpers in full, but has paid nothing to its bondholders for nearly three years, according to the interest payment schedule on roughly $50 million of pension obligation bonds issued by San Bernardino in 2005.
The non-payment of the bond debt and the city’s lack of interest in talks with its pension bondholders just weeks before it must produce a bankruptcy exit plan should serve as a wake-up call to Wall Street issuers of debt to struggling cities, according to Michael Sweet, a bankruptcy attorney with Fox Rothschild in San Francisco.
In January San Bernardino’s city attorney, Gary Saenz, told Reuters the city intended to cut its bondholder debt under its bankruptcy plan.
San Bernardino’s bankruptcy is being closely watched by the $3.6 trillion U.S. municipal bond market.
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