San Bernardino settlement bad for pension bondholders: Moody's

SAN FRANCISCO (Reuters) - San Bernardino’s bankruptcy settlement agreement with two pension obligation bondholders reached last week is a “significant loss and credit negative” for the bondholders and other investors in local government debt, Moody’s Investor Service said Monday.

The settlement includes a 60 percent haircut for the creditors, cutting the city’s payments to pension bondholders by $45 million.

The California city agreed to pay a total of $51 million over 30 years, beginning one year after the bankruptcy court approves the city’s plan of adjustment.

Although up significantly from the city’s original 1 percent proposal, Moody’s said its own calculations determined the public obligation bondholders would actually recover less than 30 percent of their investment, not the 40 percent stated in the settlement.

Commerzbank Finance & Covered Bond S.A. and Ambac Assurance Corporation are the creditors of the city’s roughly $100 million in pension obligation bonds.

San Bernardino declared bankruptcy in 2012 with a $45 million deficit. Along with Detroit and Stockton, its bankruptcy has been closely watched by the $3.6 trillion U.S. municipal bond market.

Reporting by Rory Carroll; Editing by Mary Milliken