Reuters reports that San Bernardino is stonewalling its creditors and has paid them nothing for the past three years, defaulting on $10 million of $50 million outstanding. In the meantime, it has continued to pay into CalPERS, California’s public pension fund, making monthly installments “in full.” More:
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 […]
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.
This “wake-up call” to Wall Street comes just as the city is set to produce a bankruptcy plan in the coming weeks. Municipal bondholders around the country will have their eyes trained on the city as that plan is released.
There is a shrinking pool of resources in states going through blue model collapse, but lots of people who want them—bondholders, taxpayers, pensioners. None of will emerge from the crisis unscathed, and though CalPERS has the clear advantage over creditors now, it may not always.