Holdout creditor in Stockton bankruptcy denied higher claim

Reuters News
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Posted: Dec 10, 2014 6:49 PM

By Robin Respaut

(Reuters) - The judge in the bankruptcy case for the city of Stockton, California, denied a motion by a holdout creditor that would slightly increase the amount it would receive on its claim.

Attorneys for Franklin Templeton Investments had filed a motion for a stay pending appeal of a ruling by the judge in October that confirmed the city's plan to exit Chapter 9 protection.

In the city's plan, Franklin would receive just over $4 million of the $36 million it said it is owed. The remaining $32 million of the total was considered unsecured, for which Franklin would receive less than a penny on the dollar.

That is in line with what city retirees are set to receive for their healthcare benefits. The city's plan of adjustment, a kind of blueprint for the city to exit bankruptcy, eliminated future health benefits for retirees, an estimated savings of $545 million for the city.

Franklin argued that the true savings of retiree health benefits was $261.9 million, if the claim was discounted to present day value, which would double Franklin's return on its unsecured claim by more than $300,000.

But U.S. Bankruptcy Judge Christopher Klein said he was not required to discount the claim and denied Franklin's request.

Both cases have been closely watched by the $3.7 trillion U.S. municipal bond market along with Wall Street investors, city workers, and other cities and towns across the nation to see how bondholders are treated compared with employee benefits, such as healthcare and pensions.

(Reporting By Robin Respaut)