Fund files for Chapter 11 bankruptcy

The NMI Retirement Fund, through its administrator Richard A. Villagomez, filed for Chapter 11 bankruptcy yesterday afternoon.

Attorney Braddock J. Huesman and the Boston law firm of Brown Rudnick, as proposed counsel for the Fund, filed the bankruptcy petition in the U.S. District Court for the NMI.

According to court papers, the filing of the bankruptcy petition was made after special meetings of the Fund’s board of trustees yesterday and on April 4.

Chapter 11 allows a debtor (in this case, the Fund) to enter into an agreement with creditors under which all or a part of the business continues. Chapter 11’s objective is to adjust and reorganize a debtor’s obligations so as to allow the business to continue.

The Fund also filed yesterday several motions, including a request for entry of order providing for the continued payment of benefits to government retirees, their survivors, and some persons with disabilities.

According to Huesman, the Chapter 11 filing was precipitated by the discrepancy between the Fund’s current ability to pay benefits to beneficiaries and the Fund’s current obligations to the same beneficiaries.

While the Fund urgently needs to restructure its obligations immediately to facilitate its survival, Huesman said it is also critically important that beneficiaries continue to receive their benefits through the commencement and conduct of this restructuring proceeding.

Huesman said it is for this reason that the Fund has taken steps to provide beneficiaries with full payments for a period of up to two months from a source outside of the Fund’s estate while the court considers the relief being requested in the petition.

The lawyer said the Fund’s payment of benefits to beneficiaries and operating expenses have averaged approximately $77.9 million per year in the last three years.

In contrast, he said, during those same years, the Fund’s funding—consisting of employee contributions, returns on investments, and employer contributions—has averaged approximately $30.9 million per year.

“As a result of such continuous underfunding, which necessitated withdrawing from its portfolio to cover funding shortfalls, the value of the [Fund’s] assets has fallen from $353,475,412 in 2009 to its current level of $268,448,997.84,” Huesman said.

The Fund, he added, is subject to liabilities (both current and actuarial) totaling about $911 million.

The Fund’s other motion seeks an order authorizing it to maintain existing bank accounts and continue its use of its cash management system; continued use of existing business forms; opening new debtor in possession accounts; and foregoing bond requirements for investments.

The Fund also wants the court to allow it to retain, employ, compensate, and reimburse the expenses of certain professionals used in the ordinary course of Fund business.

The other motion seeks a court order authorizing the Fund to pay its employees’ wages, salaries, and other compensation; reimbursement of pre-petition employee business expenses; payment of pre-petition tax and other withholdings to third parties; contributions to pre-petition employee health and other benefit programs; and payment of workers’ compensation obligations and other insurance premiums.

The Fund also wants a court order that will give it more time to file its schedules of assets and liabilities, schedule of executory contracts, and unexpired leases and statement of financial affairs.