San Bernardino bondholders suffered a key bankruptcy court defeat this week as the city's bankruptcy exit plan advances.

The San Bernardino City Council will hear the city's proposed bankruptcy plan of adjustment Thursday.

Monday's status hearing delivered a defeat to holders of San Bernardino pension obligation bonds.

U.S. Bankruptcy Judge Meredith Jury ruled against their argument that the pension obligation bonds should be treated on the same level as the city's obligations to the California Public Employees' Retirement System, which San Bernardino plans to honor.

Any payment of San Bernardino's obligations to CalPERS requires equivalent payment to the pension obligation bonds, law firms Ballard Spahr LLP representing EEPK and Arent Fox LLP argued in a brief on behalf of Ambac.

"The bondholder pension obligation portion and the CalPERS pension obligation portion are separate portions of a single indivisible pension obligation owed by the debtor under the retirement law and CalPERS contract," the brief said.

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