Harbinger Of Muni Bloodbath: Vallejo Offers Unsecured Creditors 5 - 20 Cent Recovery

Tyler Durden's picture

But, but, munis always pay back almost 100 cents on the dollar, even in bankruptcy, right? Wrong. Bankrupt Vallejo just filed a POR to pay back unsecured creditors between 5 and 20 cents. "The city regrets that it cannot pay a higher percentage,” Vallejo officials said in the court filings. “The city lacks the revenues to do so while maintaining an adequate level of municipal services, such as the provision of fire and police protection and the repairing of the city’s streets." Just wait for the reaction when holders of unsecured debt all those other (hundreds of) insolvent cities, towns, and states realize that a 5 cent recovery is all too possible...

And now for the bad news, from Bond Buyer:

Unsecured creditors will receive 5 cents to 20 cents on the dollar for their claims under a reorganization plan Vallejo, Calif., filed Tuesday in federal court.

The plan to exit bankruptcy outlines the reorganization of debt the city owes its largest creditors, Union Bank and National Public Finance Guarantee. It also sets aside a pool of $6 million to pay unsecured creditors about 5% to 20% of their claims over two years, according to court documents filed in U.S. Bankruptcy Court for the Eastern District in Sacramento.

The formal legal plan is based on a five-year road map City Council members approved at the end of November, tackling $195 million in unfunded city pension obligations, cutting payments for retiree health care, reducing pension benefits for new employees, raising pension contributions for current workers, and creating a rainy-day fund.

Union Bank, the largest creditor, is owed $50 million after holding letters of credit on four series of defaulted COPs. The filing indicates Union Bank will get a new “lease-leaseback” obligation in exchange for canceling the COP series. It will also get $6 million of unspent proceeds from the COPs held under trust agreements.

Union Bank is slated to get 40% less than what it would have received from the original COP scheduled payments, according to the Vallejo filing.

Vallejo’s exit strategy includes restructuring the debt owed to unsecured creditors, many of which are employees and retirees, by creating a $6 million pool of cash that will be paid out over two years. They will still be able to pursue one of the city’s insurance pools to settle the liabilities, according to the documents.

Vallejo is certainly not the last to file a plan of reorg that attributes its GUCs nuisance value. We wonder when these same GUCs realize they are nothing but a nuisance: today the MUB actually closed up.

h/t Bruce Krasting

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Cleanclog's picture

Tyler - For the headline, it is spelled Vallejo.


faustian bargain's picture

they had to sell one of the extra L's.

Malcolm Tucker's picture

JP Morgan : King of the Food Stamps, they are the market leader in processing for the food stamp program!


Video of a bloomberg interview with the guy who heads up that division.

You really can't make this up.


cocoablini's picture

Because food stamps buy "food" and as such is "money."
Food stamps ,a) keeps the masses fed,b) supports large corporation like Walmart and Coca-cola, c)helps the banks control money supply in all its forms. Yes, stamps are welfare fiat currency.
The banks are truly meshed with the politicians and it will take decades to unwind and decouple these 2 horrific entities from power.
JP can game the food stamp business, and help its buddies. If you haven't heard the "poor" can buy soda and candy with food stamps to feed their "starving" but if you want organic produce, well you are yuppie scum. You will have to settle for GMO poison instead. Snackwells, coke, capt crunch etc. Then the "poor advocates" who are just lobbyists for Pepsico and Nabisco say to force people to eat healthy is " scapegoating the poor."
Look it up- its true. Total corporate kleptocratic bullshit

Mudflap's picture

Everybody was really upset when Arnie threatened to tax golf to pay for the CA deficit.  Much easier to sell the 'l' and keep on stroking.

I wonder if Bernie thinks POMO is a 'gradual' approach to the problem at hand circa one of his early (2004) speeches at the central bank? (used miniature golf analogy) ...

“Imagine that you are playing in a miniature golf tournament and are leading on the final hole. You expect to win the tournament so long as you can finish the hole in a moderate number of strokes. However, for reasons I won’t try to explain, you find yourself playing with an unfamiliar putter and hence are uncertain about how far a stroke of given force will send the ball. How should you play to maximize your chances of winning the tournament?

“Some reflection should convince you that the best strategy in this situation is to be conservative. In particular, your uncertainty about the response of the ball to your putter implies that you should strike the ball less firmly than you would if you knew precisely how the ball would react to the unfamiliar putter. This conservative approach may well lead your first shot to lie short of the hole. However, this cost is offset by the important benefit of guarding against the risk that the putter is livelier than you expect, so lively that your normal stroke could send the ball well past the cup. Since you expect to win the tournament if you avoid a disastrously bad shot, you approach the hole in a series of short putts (what golf aficionados tell me are called lagged putts). Gradualism in action!”


The alternative to gradualism, he said at the time, would be a “cold turkey” approach.  But that “carries the risk that policymakers will take strong action in response to information that may later be revealed to have been seriously inaccurate,” Bernanke said.

Source link: http://blogs.wsj.com/economics/2010/10/27/bernanke-on-gradualism-and-min...

He oviously opted for the 'cold turkey' approach...

mt paul's picture

golf tax....

per stroke over par ..

nedwardkelly's picture

Great. Just what I needed, another scary swing thought.

pyrometer's picture

It's not.  Vallejo's violent crime rate has always been high, it's going up and it's   infrastructure is crumbling.

Lord Koos's picture

Yep, I've been through there a few times over the years, it's a pretty funky town.

QQQBall's picture

No doubt.... The bankrupt city named _____ seems like a nice place to live... what?

MayIMommaDogFace2theBananaPatch's picture

they had to sell one of the extra L's.


myTPisUSD's picture

or Valley Joe if you're trying to get hyphy with it

faustian bargain's picture

lol, 'hyphy', i haven't seen that term bandied about in a while.

myTPisUSD's picture

Wasn't Mac Dre throwin jail for "conspiracy to rob a bank"? He shoulda taken tips from Timmah and the Bernank on how its done en masse of the people

Cleanclog's picture

Hilarious!  And so close to Hyphy Oakland too.

Problem Is's picture

"Tyler - For the headline, it is spelled Vallejo."

And It's Pronounced: Val-E-HO
Bankrupt or not --- It's a dump... Armpit of the north bay...

Misstrial's picture

US Con. George Miller's (D) District.

He is one of the power elites who wanted water pumps shut off for the western Central Valley farms. Seventy thousand people lost their jobs in ag. 

Recipient of contributions from SF environmental groups and labor unions. 


TruthInSunshine's picture

You can't get blood from a Vallejo, bandejo.

EscapeKey's picture

Given the amount of analysts practically falling over themselves in order to inform the sophisticated investors how wrong Meredith Whitney is, you knew it was coming.

kujo's picture

Everybody knew it was coming. This is a manufactured crisis in the muni market, I think to chase the retail investor into equities. Dust off Meridith Whitney, a banking analyst, and throw in Jamie Dimon and whip up the MSM, you have a nice crisis. The retail muni buyer is about to panic and be fleeced.

Founders Keeper's picture

[Given the amount of analysts practically falling over themselves in order to inform the sophisticated investors how wrong Meredith Whitney is, you knew it was coming.]---EscapeKey

Agreed. Thanks for your post.


Ancona's picture

And so it starts. Let's see how long it takes for investors to start bailing out en masse.

Quantum Nucleonics's picture

They've been bailing out for weeks, if you look at the fund flow reports.  There are now at least a couple funds shopping multi-billion dollar sell lists.

Strider52's picture

Wow, pretty soon there will be nothing left to invest in except paper ETF's and metals-in-hand. When all of the metal is gone, invest in canned food, bottled water, guns & ammo. When those are all gone, die.

topcallingtroll's picture

There is a better option. Its time to organize for mostly peaceful change. Kprice1670@gmail.com

UncleFester's picture

I'm calling a top on peace.  Yep, looks like it'll roll over in 2011.

Joe Davola's picture

large unemployment rolls = cannon fodder

Terminus C's picture

Herein lies the long term goal of the U.S. government.

DonnieD's picture

Bulldoze it and turn it into a Winery. I'll buy a case of 2012 Cabernet.

SheepDog-One's picture

That will just be a bottle filled with blood.

andybev01's picture

6-Flags, lowered to half mast.

sodbuster's picture

>Just wait for the reaction when holders of unsecured debt all those other (hundreds of) insolvent cities, towns, and states realize that a 5 cent recovery is all too possible...<


Just wait for the reaction of all the other cities, towns, and states, when they realize it is possible to get out of THEIR unsecured debt for 5 to 20 percent!! Happy Days!!



chet's picture

QE3.  All your munis are belong to the Fed.

gorillaonyourback's picture

very good point, if you look at 1 percent own 88 percent of wealth and 5 percent own 93 percent.  i think the numbers r ok.  fuck em all the cities and states should go bankrupt


johnnynaps's picture

Which means it should be 88-93% "their" fault when TSHTF!

irishlink's picture

OMG. We will be solvent here in Europe if we pull off a haircut like that . What could we name it? A 23?

Rainman's picture

No 5-cent haircuts for you, your hair is much too long. Double price.