Exclusive: Bankrupt San Bernardino repaying millions in arrears to Calpers By Tim Reid LOS ANGELES (Reuters) - Bankrupt San Bernardino has begun repaying millions in arrears to the California Public Employees' Retirement System (Calpers) in a deal that has ended an acrimonious relationship between the California city and its biggest creditor. San Bernardino has set aside $10.6 million in its current budget, which has yet to be published, to pay an unnamed creditor. A senior city source, speaking on the condition of anonymity because details of the Calpers deal are subject to a judicial gag order, confirmed that creditor is Calpers. San Bernardino suspended the payment of debts to all creditors when it declared bankruptcy. Its decision to strike a deal with Calpers first, and begin paying arrears before a bankruptcy exit plan could be formulated, shows the reluctance of California cities to take on the pension giant, which insists that it must always be paid in full, even in a bankruptcy. The city declared bankruptcy in August 2012 and suspended its employer payments to Calpers for an entire year after entering Chapter 9 protection, running up principal arrears of $13.5 million, according to Calpers. San Bernardino began monthly payments of between $600,000 and $700,000 to Calpers in July, according to the source. A second official, budget officer for the city Dixon Mutadzakupa, confirmed that arrears payments to Calpers had begun. Calpers is America's biggest public pension fund with assets of $300 billion. The city and Calpers declined to say whether the $10.6 million in the city's current budget is a final settlement figure, which would mean the fund is receiving roughly 80 cents on the dollar, or whether the remainder of the arrears will be paid next year. The city declined to reveal the identity of the creditor. In addition to begin repaying the Calpers arrears, San Bernardino had resumed making its full biweekly employer payments to the pension fund in July 2013. There appears to be no appetite inside the city to seek a reduction in future payments to Calpers, although the first draft of a bankruptcy plan, which will set out how the city intends to deal with its creditors, is not expected until early next year. Last week, Calpers escaped unscathed when a judge approved a bankruptcy plan for Stockton, California. Most of Stockton's other creditors, including bondholders and insurers, were forced to accept significantly reduced payments to settle their original debts. The deal with San Bernardino, and the fact that Calpers was left whole under the Stockton plan, represents a significant victory for the pension giant. When San Bernardino and Stockton declared bankruptcy in the summer of 2012, many analysts predicted they would be in the vanguard of a push by other California cities to cut their Calpers obligations through bankruptcy. That has not happened and San Bernardino appears to have concluded that taking on Calpers is too risky. "The city believes ... that sustaining their relation with Calpers is very important," Paul Glassman, the city's bankruptcy attorney, told the bankruptcy judge in June. The city is one of a handful of municipal bankruptcies in the United States being closely watched by the $3.7 trillion U.S. municipal bond market. Bondholders, public employees and other state and local governments are keen on understanding how financially distressed cities handle their debts to Wall Street, compared with other creditors such as Calpers. Reporting by Tim Reid; Editing by Bernard Orr