SACRAMENTO, California (Reuters) - The city of Stockton, California and its creditors were steered into new talks with a mediator who settled a key dispute in another municipal bankruptcy case as a U.S. judge said on Thursday it may take months to determine if Stockton deserves court protection.
Stockton, a city of nearly 300,000 people in the state's Central Valley, filed for Chapter 9 bankruptcy in late June, the most populous U.S. city to seek protection from its creditors.
Attorneys for Stockton and its creditors agreed in Judge Christopher Klein's courtroom in Sacramento, California to a schedule for the coming months for further review of objections to the city's bankruptcy eligibility claim.
Stockton will provide documentation through September to its creditors, who have until October 26 to review it. They then face a November 9 deadline for filing substantive objections. Stockton has until December 21 to respond.
Klein endorsed the timeline, noting he intends to methodically work through Stockton's bankruptcy case. He will hold a status hearing on January 8, 2013 on where the case stands and may hold an evidentiary hearing later that month if needed.
At the same time, Klein encouraged Stockton and its creditors to press on with talks overseen by a mediator to help resolve their differences over how the city plans to restructure its finances.
Stockton's revenues has plunged in recent years due to the collapse of its once torrid housing market, requiring the city to seek bankruptcy protection to enable it renege on some costly obligations, including medical coverage for its retired employees and some bond debt, city officials say.
Two bond insurers challenged Stockton's eligibility earlier this month, arguing in court filings the city can cut pension benefits to help bolster its finances.
National Public Finance Guarantee Corp, a unit of MBIA Inc, said Stockton's failure to ask for concessions from its biggest creditor, the California Public Employees' Retirement System, showed it had not negotiated in good faith before filing for bankruptcy protection.
Assured Guaranty contended Stockton undermined its case by favoring the pension fund for state and local government workers and said the city had not proven it is insolvent.
Klein said mediation in parallel to the court case will be overseen by Judge Elizabeth Perris, who helped guide a settlement in the dispute that prompted Mammoth Lakes, California to file for bankruptcy shortly after Stockton.
Mammoth Lakes, a resort town of about 8,000 residents in the Sierra Nevada Mountains, said on its website on Wednesday that with Perris' guidance it settled a $43 million court judgment awarded to a developer over a property dispute that threatened to swamp its finances.
Mammoth Lakes said details of the agreement will remain confidential until fully documented and executed. Documentation is expected to be filed for court approval within weeks, Mammoth Lakes said, adding that it will hold public meetings to discuss how it will finance the settlement. The case is in U.S. Bankruptcy Court, Eastern District of California (Case 12-32463).
Stockton's case also in U.S. Bankruptcy Court, Eastern District of California (Case 12-32118).
(Reporting by Jim Christie, editing by Peter Henderson and Chizu Nomiyama)