%1

Moody's Investors Service downgraded Newark, New Jersey, on Friday two notches to Baa3, one level above junk, bringing to a close the rating agency's review of seven of New Jersey's most financially stressed cities, Reuters reported yesterday. Altogether, Moody's downgraded $935.7 million of local government debt in New Jersey, including Newark, Trenton and Paterson, that it had put under review in March. Only Weehawken escaped with its debt rating unscathed. Paterson lost its investment-grade rating on May 4. Newark also saw $39 million of its general obligation limited tax bonds cut to junk on Friday. None of those cities have come to market since they were put on review. But Trenton canceled a planned bond sale days after its downgrade.

San Bernardino's council yesterday approved a bankruptcy exit plan that seeks to virtually eliminate the southern California city's pension bond debt while paying Calpers, the state pension system, in full, Reuters reported today. The city council voted 6-1 for the plan after a debate which included input from residents. The bankruptcy blueprint, called a plan of adjustment, must now be presented to the federal judge overseeing the city's bankruptcy by May 30, under a court-imposed deadline. Under the plan, city officials want to slash their $50 million pension debt to just a penny on the dollar. The city previously agreed to pay CalPERS, its biggest creditor, in full now and at all times in the future, an agreement incorporated into the plan.

While many Chicagoans write off the relentless comparisons of their city to bankrupt Detroit, it has the lethal combination of too much debt and a dysfunctional government that could tip the city into bankruptcy, according to a Huffington Post commentary on Friday. The Illinois Supreme Court recently made Chicago's path toward bankruptcy more likely when it ruled that modest reforms to Illinois' state pension plans were unconstitutional. Moody's Investors Service followed the court ruling with a double-notch downgrade of the city's credit rating. Chicago's bonds are now rated "junk" and are the riskiest of all big cities in the nation, apart from Detroit. The collapse in Chicago's rating is the result of a massive spike in Chicago's debt in the last decade, driven by out-of-control pension obligations and the city's unwillingness to do anything about it.

Allowing Puerto Rico to restructure its public corporation’s debts in bankruptcy would help give the island’s economy some breathing room and politicians some authority to undertake further economic reforms, according to a commentary in the recent edition of The Weekly Standard magazine. The only problem is that as a U.S. territory, Puerto Rico cannot use chapter 9. The island tried to get around that obstacle by passing legislation that would have accomplished nearly the same thing as a chapter 9 restructuring, but a federal judge in Puerto Rico struck down the new law in February. Puerto Rico also has asked Congress to amend the Bankruptcy Code to treat it like the 50 states, and the House Judiciary Committee recently held a hearing on the issue. Absent some sort of restructuring under chapter 9, Puerto Rico’s situation may keep deteriorating until a federal role — along with a potential federal bailout — becomes necessary.

The Southern California city of San Bernardino wants to repay its pension bondholders just a penny on the dollar while paying the state pension fund CalPERS in full under its long-awaited bankruptcy exit plan released yesterday, Reuters reported. Under the city’s plan of adjustment, San Bernardino also intends to virtually eliminate retiree health insurance costs, and outsource its fire, emergency response and trash services. San Bernardino's bankruptcy blueprint follows the approach taken in the recent bankruptcies of Detroit and Stockton, Calif., where bondholder debt and retiree healthcare costs were slashed or eliminated, while pensions emerged relatively unscathed. San Bernardino proposes paying the Luxembourg-based bank EEPK, along with Ambac Assurance Corp, which insures a portion of the pension bonds, and Wells Fargo, the bond trustee, have the $50 million principal amount of their debt slashed to just $500,000, or a penny on the dollar, under the bankruptcy plan.

Detroit's public sale of $275 million of bonds that financed the city's exit from bankruptcy has been delayed but should take place no later than early August, Reuters reported yesterday. Detroit is taking advantage of a new law that should give the bonds investment-grade ratings that could save the city between $20 million and $30 million over the life of the issue, according to the office of Michigan Governor Rick Snyder, a Republican. The law took effect in April and places a specific statutory lien on Detroit income tax revenue pledged to pay off the debt. The city is hoping the stronger payment pledge on the bonds will result in lower interest rates.

Bankruptcy Judge Meredith Jury ruled yesterday that pension bondholders can’t force the bankrupt California city of San Bernardino to pay them as much as the state’s powerful retirement system, a judge ruled, Bloomberg News reported yesterday. Judge Jury acknowledged that her decision yesterday is likely to be seen as unfair to the municipal-bond market and may even discourage investors from buying pension-obligation bonds in the future. “What I see as unfair and might seem unfair to the outside world does not matter under law,” Jury said. She said there was no legal way to force bondholder debt to be repaid exactly as monthly pension dues owed to the California Public Employees’ Retirement System (CalPERS). In January, bondholders sued San Bernardino in federal court, seeking to convince Judge Jury that their debt must be given equal repayment status as the city’s payments to CalPERS. San Bernardino filed bankruptcy in 2012, blaming the high cost of fire and police contracts, including pensions. Since then, the city has battled fire and police unions over its plan to impose cuts.

Almost three years after declaring bankruptcy, the southern California city of San Bernardino will issue its long-awaited bankruptcy exit plan on Thursday, May 14, the city mayor said, Reuters reported on Friday. San Bernardino mayor Carey Davis said that the city’s plan of adjustment will be attached to the agenda for the next council meeting this Thursday. Davis conceded that the plan, which will be voted on by the city council on May 18, will still only mark the beginning of months of additional wrangling among the city and its creditors. If the council backs the plan, it will be presented to court by May 30, under a deadline set by the bankruptcy judge overseeing the case.

More than 400 employees of Atlantic City, N.J., municipal government and its school district could be laid off under a pair of plans made public on Friday, the Press of Atlantic City reported yesterday. Layoff notices went out to nearly 200 Atlantic City government employees, including about 88 firefighters and 107 employees in other city departments. Meanwhile, the state monitor overseeing the city school district confirmed that it will lose 226 full-time positions under the proposed 2015-16 school budget he will present to the school board at a special meeting today. The news of the possible layoffs, which could be in effect by the end of June, has been anticipated for months as the city and school district struggled to deal with the city’s ongoing financial crisis.