Bankrupt California city wants deal with bond insurer by Thursday

Reuters News
Posted: Oct 01, 2013 7:52 PM

STOCKTON, California (Reuters) - Stockton, California, hopes to have a deal with bond insurer Assured Guaranty by Thursday, but if needed the city could impose a settlement to help it exit bankruptcy, its city manager said.

"We want consent," Stockton Manager Bob Deis said during a press briefing on Tuesday. "But it's not necessary."

Stockton released on Friday a draft plan for adjusting its debt to exit from municipal bankruptcy that maintains pension obligations to city employees while paying some creditors less than they are owed.

Stockton's city council could approve the draft as soon as Thursday, opening the door for the city to file it as its exit plan with the judge hearing its bankruptcy case.

Creditors have to vote on the plan.

The draft plan said Stockton had the "outlines of a negotiated settlement" with Assured over $124.3 million in outstanding pension obligation bonds that the city had targeted for losses to restructure its finances.

No details were provided in the draft and Deis declined to elaborate on the talks with Assured. A spokeswoman said the bond insurer had no comment.

Assured and fellow bond insurer National Public Finance Guarantee led efforts by Stockton's so-called capital markets creditors to block the city's bankruptcy case, saying city pensions managed by the California Public Employees' Retirement System should have been treated like other debt.

The draft plan also disclosed a preliminary deal with National over $45.1 million in outstanding lease revenue bonds for the city's arena whose payments will be cut by 3 percent. Other bonds related to parking garages will be cut by 12 percent, while a third bond for a city building will be paid in full.

A spokesman for National declined to comment on the agreements.

Deis does not anticipate further opposition by the bond insurers over Stockton's pensions.

"I expect that message to not be front and center," he told Reuters.

With about 300,000 residents, Stockton set itself apart from Detroit, which has filed the U.S. largest municipal bankruptcy, and from smaller San Bernardino, because it intends to leave pension payments whole.

Stockton defended its pensions, and the $268 billion state pension fund was prepared to back that in bankruptcy court, with cuts to payrolls, as well as to benefits.

Stockton's retired employees are also contributing by giving up their city-provided medical care, Deis noted.

Stockton's plan for exiting bankruptcy assumes voters will approve a sales tax increase in November to help bolster its finances and standing in bankruptcy court. If they do not, the city would need to cut $11 million in spending, which would fall on libraries, community centers and fire houses, Deis added.

(Reporting by Jim Christie. Editing by Andre Grenon)