America's rarely used municipal bankruptcy law is presenting unexpected risks for investors in the $3.7 trillion U.S. tax-free bond market, Reuters reported on Friday. The largest U.S. pension fund, the California Pension Retirement System (CalPERS), this week sued San Bernardino, Calif., in a bid to halt its bankruptcy, creating fresh uncertainties for municipal bond buyers. At stake for San Bernardino is much more than the few million dollars that it owes in arrears for pensions - a token amount in comparison with the $241 billion managed by Calpers. Similarly, bankruptcy experts and bond investors are closely watching the judge handling the year-old $4.23 billion chapter 9 case filed by Alabama's Jefferson County that may affect risk assessments and interest rates for tax-free revenue bonds.
