Thu 04/15/2021 18:20 PM
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Relevant Documents:
Special Meeting (YouTube)
Long Beach Financials 2020
Meeting Minutes

During a special city council meeting held on Tuesday, the city of Long Beach voted unanimously to retain law firm O'Melveny & Myers and advisory firm M3 Partners to help manage the city’s approximately $465 million of long-term debt. Long Beach, in Nassau County, is New York’s most financially stressed city, according to the state comptroller’s fiscal stress monitoring system, and faced extensive damages from Superstorm Sandy. During the meeting, professionals from O'Melveny and M3 stressed that bankruptcy for the city was an option of “last resort,” adding that the professionals would focus on assessing the city’s liabilities and working to modify them in a “consensual” way.

City Manager Donna Gayden, who was appointed in February 2020, stressed during the meeting that the city plans to address its long-term obligations, adding that there will not be “massive layoffs” or “cutting services.”

During Tuesday’s meeting, the council heard from Mohsin Meghji of M3 Partners and Maria J. DiConza and John Rapisardi of O'Melveny. DiConza noted during her opening remarks that O'Melveny and M3 are involved in the process to “build on the work” already done by the city’s manager and comptroller, adding that the firms will look at and explore a series of options, which could include refinancing, reprofiling, negotiating consensual modification or attempting to maximize revenue. DiConza said that there is not “one right path,” adding that while Long Beach could “resort” to an in-court option if necessary, such an option is a “tool in the process,” not the goal. She also focused on looking at the situation “objectively” and finding “a holistic solution.”

Meghji told Reorg in a phone interview Thursday that the “first phase” of his firm’s mandate would last a few months. “I’d say two to three months, but there’s no exact timing for when something will be announced,” he said. “We’re just trying to get our arms around the situation.”

Meghji also provided the following summary of the city’s long-term liabilities in connection with a presentation to the city council:
 

During his portion of the presentation, Meghji reiterated that the professionals will consider “all of the options,” echoing DiConza’s comment that “bankruptcy is not what we are focused on today” and making clear that bankruptcy is an option “of absolute last resort.” Meghji stressed that the professionals are not foreclosing “any tools” that the city “may have at its disposal.” He added, “Just to be clear, any headlines around bankruptcy or any sort of dark news is definitely well premature and probably wrong.” Meghji explained that the process is aimed at dealing with the city’s long-term liabilities in a responsible manner that allows the city to continue its services.

Later in the meeting, both DiConza and Rapisardi addressed questions about potential avenues for restructuring the city’s debt, including those related to concerns about potential tax increases. DiConza stressed the need for a realistic assessment of the liabilities, when and how they can be paid, and the restructuring options, focusing on the need for all constituencies to be involved in arriving at solutions, including business leaders and bondholders. Rapisardi explained that the focus would be on debt modification and debt adjustment and how the city can achieve that in a “consensual” way.

“It’s not a question of if but how because it is a very large number and it needs to be addressed and somehow adjusted or modified,” he added, explaining that the professionals will be “going to work to figure out creative ways where we can convince the various constituencies holding these pieces of debt to engage with us and come to an agreement as to a modification or adjustment of that debt, which allows the city to carry the debt going forward in a sustainable, affordable way.” Regarding a potential time frame, DiConza stressed that O’Melveny was looking to “move quickly” and have “some analysis” for the city in the short term.

Meghji also noted at the meeting that the professionals will look at “all potential other sources of funding [and] financing” that can help “alleviate” the city’s debt problems.

Scope of M3 Partners and O’Melveny Retentions

The city council authorized the retention of M3 Partners to work with the city and its consultants, including the following work:
 
  • A rolling 13-week cash flow forecast to assess liquidity and identify inflow/outflow timing issues;
     
  • Assisting the city in developing long-term budget projections in conjunction with the city’s existing advisor to provide visibility on the severity of its fiscal issues;
     
  • Identifying credible strategic alternatives to address operational and financial issues; and
     
  • Assisting the city in implementing/executing a restructuring plan.

The council also approved the resolution authorizing the retention of O’Melveny & Myers as outside counsel to “work with the City and its consultants to provide legal advice on financial restructuring, which includes the analysis of strategic alternatives related to the City’s financial obligations and matters related to such financial obligations.”

New York state Sen. Todd Kaminsky, D-Long Beach, noted at the council meeting that ideally, the professional fees for M3's and O'Melveny’s services would be authorized by the state’s financial restructuring board and paid for by the state, adding that these are “real experts who deal with crisis situations.”
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