June 22, 2013 / 12:11 AM / 5 years ago

Bond insurer hires new lawyers in California bankruptcy cases

SAN FRANCISCO, June 21 (Reuters) - Bond insurer National Public Finance Guarantee has hired a new law firm to represent it in the California municipal bankruptcy cases of San Bernardino and Stockton after a judge found its original firm had created a conflict for itself.

National spokesman Kevin Brown said on Friday that Weil, Gotshal & Manges will replace Winston & Strawn in the cases.

The unusual switch in law firms follows a decision last week by U.S. Bankruptcy Judge Meredith Jury in the San Bernardino case to disqualify Winston & Strawn at the behest of the California Public Employees’ Retirement System.

The pension fund, known as Calpers, had complained that Winston & Strawn had recently hired attorneys away from K&L Gates, the law firm for Calpers in both bankruptcy cases.

The pension fund also demanded Winston & Strawn’s disqualification from the Stockton case. A response to that was due this week but will not be filed with the bankruptcy court hearing the city’s case as Winston & Strawn is stepping aside, Brown said.

“We’re not objecting,” Brown said.

U.S. Bankruptcy Judge Christopher Klein in April approved Stockton’s eligibility for bankruptcy, allowing the city to draft a plan for adjusting its debts. Stockton aims to file that plan with Klein in September.

Hearings next month and in August could determine San Bernardino’s eligibility for bankruptcy.

The U.S. municipal debt market is closely watching both cases as they may test who absorbs most of the financial pain when local governments go broke: bondholders or current and retired city employees.

Calpers manages the pension plans of the two cities and has fiercely resisted any cuts in pension payments.

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