WASHINGTON -- The state-appointed administrator of California's Richmond Unified School District last week moved to dismiss the district's bankruptcy petition and negotiate with investors over a $1.1 million, bankruptcy-induced deficiency on the district's certificates of participation.
"While the decision to file a bankruptcy petition in April was a necessary one, the majority of the district's objectives have now been met," said Fred Stewart, who is legally responsible for running the district. Mr. Stewart was appointed the district's administrator by the state superintendent of public instruction in May under a superior court order, after the district filed for bankruptcy.
The $9.8 million certificates issue went into default last month when the district failed to make a $1.1 million lease payment, citing its bankruptcy and a lack of funds in its operating budget. The default forced the trustee of the issue, Security Pacific National Bank, to use reserve funds to make an August principal and interest payment to investors.
The district also has included no plans in its fiscal 1992 budget to make another $279,105 interest payment, which is due in February. Investors had been expected to take their place in line with other district creditors under the bankruptcy proceeding, but the state's move to withdraw the bankruptcy petition renews uncertainty about the future of the issue. A Bankruptcy court hearing on the dismissal motion is scheduled for Oct. 3.
At first blush, the intervention of the state-appointed administrator raised some hope that the state would step in and cure the deficiency, according to participants in the bankruptcy proceeding.
However, state officials made it clear Friday that while they want to lift the bankruptcy proceeding and will assist the district in working out its financial problems, they have not as yet pledged to bail the district out of its long-term debt obligations.
"The state is committed to providing only technical assistance to Richmond on the COPs," said Mike Keebler, a consultant to Mr. Stewart. Joseph Symkowick, an attorney with the State Department of Education, also denied that the state has taken on any financial obligation of the district, and said that whether the state is responsible may have to be decided by the courts.
Under terms of the certificates indenture, investors could choose to sue the state and the district for replenishment of the reserve funds, if the state succeeds in lifting the bankruptcy proceeding, attorneys said.
"The investors have more rights outside of bankruptcy than in bankruptcy," said one attorney close to the proceedings.
In the meanwhile, Mr. Symkowick said that the state attorneys plan to "contact" the certificates holders and other district creditors in what Mr. Stewart described as an attempt to negotiate a resolution of "the few remaining long-term obligations. . .outside the bankruptcy arena."
The state officials would not say what they will offer creditors. But Ernie Ciarrochi, an official with the local teachers union, said he expects the state to "try to negotiate something where they will get something less than 100 cents on the dollar."
The teacher union and state officials currently are bargaining over a new contract in which the state is seeking a 9% pay cut, leading Mr. Ciarrochi to charge that the state wants to dismiss the bankruptcy primarily to protect its own interests while exacting concessions from other parties. The state has demanded complete repayment of $29 million of loans it has made to the school district, he said.
Mr. Keebler said, however, that Mr. Stewart is seeking the dismissal because he believes the district is in better financial condition than it was in April and can now handle its long-term obligations outside of bankruptcy.
Mr. Symkowick added that the court-ordered state takeover of the school district also raised questions about whether it could legally file for bankruptcy under Chapter 9, which applies only to municipal governments and not to state governments.
Mr. Ciarrochi said that the teacher's union would oppose the dismissal motion and out of concern over the state's intentions and a desire to see all the district's financial obligations treated equitably under a reorganization plan ordered by the bankruptcy court.
No other creditors have yet indicated whether they would fight the bankruptcy dismissal, however, and Mr. Ciarrochi acknowledged that it would be an "uphill battle" to force the district to stay in bankruptcy.