Municipal Restructuring and Insolvency

Municipalities have been increasingly squeezed between the cost of providing basic services and flat or declining revenues.

In addition, reliable access to capital has been interrupted in recent years by unprecedented turmoil and change in the bond market and the near disappearance of the bond insurance industry. Rising pension and post-employment benefits costs combined with a generally flat or only slightly increasing revenue picture have been significant challenges for many communities. Credit deterioration, on the part of both municipalities and financial counterparties, has caused some transactions, particularly those involving variable rate debt and/or interest rate swaps, to unravel. In the face of these pressures, there is a possibility that municipalities may need to take extreme measures, including significantly restructuring their operations and even, in some cases, seeking protection under Chapter 9 of the United States Bankruptcy Code. Our municipal distress practice has been in the forefront of responding to these challenges, having successfully completed restructurings both within and outside of Chapter 9 for several municipalities, including handling the high-profile Chapter 9 bankruptcies for the cities of Vallejo and Stockton. Our team comprises lawyers from several practice areas to combine their experience in:

  • Public finance and municipal law
  • Restructuring and creditors’ rights
  • Financial markets, including derivative products and federal TARP funding
  • Securities law, including disclosure
  • Employee benefits, including pension and OPEB matters
  • Litigation
  • Tax
  • City of Stockton, California

    Represented the City in preparing for, and then subsequently filing, its Chapter 9 bankruptcy case, including representing the city in the 90-day statutory mediation process which preceded the bankruptcy case. Orrick worked with the City to prepare a detailed proposal to restructure the material claims against the city, including the City’s bond obligations, many of which were insured, long-term liabilities (including pension, healthcare and labor), large judgments, injunctions, leases and other major claims. While preparing a pre-bankruptcy plan and negotiating with creditors, we also worked simultaneously on preparing the City’s Chapter 9 bankruptcy petition. Orrick helped the City win a significant and cutting-edge bankruptcy court ruling upholding the City’s pre-bankruptcy unilateral reduction and phased out elimination of retiree health benefit payments over the objection of the association of retired City employees. Orrick recently won another ruling on an issue of first impression, i.e., whether a Chapter 9 debtor may enter into settlements with creditors during the pendency of the case without court approval. Finally, following a three-day evidentiary hearing, the bankruptcy court overruled objections filed by four institutional lenders and ruled that Stockton was eligible for Chapter 9 relief.

    City of Vallejo, California

    Represented the City of Vallejo, California in filing its Chapter 9 case in 2008. At the time, Vallejo was the largest California municipality to seek bankruptcy relief since Orange County. We worked with the City to prepare a detailed proposal to restructure each creditor claim, including the City’s debt obligations, long-term liabilities (including pension, healthcare and labor), leases and other major claims. While preparing a pre-bankruptcy plan and negotiating with creditors, we also worked simultaneously on preparing the City’s Chapter 9 bankruptcy petition. Orrick was named "Dealmakers of the Year" by American Lawyer in connection with our work on this matter.

    City of Richmond, California

    The city of Richmond, California, experienced significant financial difficulties from 2000 to 2004. In early 2004, Richmond projected a general fund deficit equal to approximately 30 percent of the general fund budget for fiscal year 2003–04. Richmond’s audited financial statements were late, and its accounting system was unable to produce reliable reports on the city’s finances. Orrick lawyers worked closely with Richmond and its financial advisors to develop a fiscal recovery plan for the city. Orrick lawyers provided critical advice to resolve its cash flow problems and allow it access to the market, as well as identifying innovative methods for Richmond to resolve its cash flow problems efficiently. Richmond successfully emerged from its fiscal crisis, now has a solid “A” rating and has been able to access the bond market for needed public programs and projects.

    Orange County, California

    Orrick was hired as counsel to Goldman Sachs & Co. to advise on the allocation of monies to debt and other obligations during Orange County’s bankruptcy, financings during bankruptcy, the plan to exit bankruptcy and the bond financings that enabled the county to emerge from bankruptcy. After the bankruptcy case, Orrick was hired by the county as its principal finance counsel.

    Jefferson County, Alabama

    Orrick represented a significant creditor that has exposure in some of Jefferson County’s municipal financings and has had significant involvement since the county’s financial difficulties became known.