Exclusive: San Bernardino has Defaulted on $10 million in Bond Payments

March 17, 2015 – In The News

Michael Sweet was featured in the Reuters article “Exclusive: San Bernardino has Defaulted on $10 million in Bond Payments.” Full text can be found in the March, 17, 2015, issue, but a synopsis is below.

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.

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.

"Bondholders should be realizing that in Chapter 9 cases those who will invariably get better treatment by the cities are former and current employers, who are part of the community, and not the faceless bankers holding commercial paper," Sweet said.

But Sweet said San Bernardino's treatment of its bondholders could come back to haunt it. "Down the road, the city may find that the capital market is unavailable to it or that it will be penalized at a very high rate when it seeks to borrow," he said.

This article was also published in the March 17, 2015, issue of Yahoo Fiance.