I've posted here, here, and here about the likelihood of a Chapter 9 bankruptcy for the City of Detroit and the prudence of creation of a bankruptcy regime for individual American States. I argued that, while bankruptcy is expensive, it may provide the only means by which all creditors, including retirees could be forced to share in the pain of governmental insolvency.
You can go here for a link to a panel podcast ("Experts Examine Current Chapter 9 Cases and What Lies Ahead for Municipal Distress in 2013") in which one of the panelists was Bankruptcy Judge Christopher M. Klein. Judge Klein is the judge in the pending Chapter 9 bankruptcy case of Stockton, California.
Or perhaps, by the time you read this, Stockton's bankruptcy will no longer be pending.
The city's bondholders have moved the court to dismiss the case because, they claim, it was not filed in "good faith." Why not? Because so far the city has continued to pay 100% of its retiree benefit contributions and held up payments to the bondholders. Indeed, it appears that Stockton is aiming to submit a plan for court approval under which it would continue to pay all retiree claims in full but bondholders as little of 70% of what's due. Unfair, the bondholders cry!
They're probably right but Judge Klein will decide whether unfair = bad faith over the weekend.
I must admit that some of my enthusiasm for governmental bankruptcy will dissipate if Stockton can get away with such disparate treatment of its creditors. Bankruptcy should not be a means to achieve political ends. (At least that's what I think; the General Motors bankruptcy is "Exhibit A" for what can go wrong when politics trumps the law.) Given the political dynamics of Detroit, we can expect to see similar treatment there if Stockton can prefer one set of creditors to another.
Not surprisingly, there's more in the stew of retirees vs. bondholders than I've described here. Yet the principle at work (pari passu for those who want to know) is fundamental to any insolvency regime. (Just ask folks in Cyprus.) Federally-mandated tweaking is one thing; blatant manipulation is another.
You can go here for a link to a panel podcast ("Experts Examine Current Chapter 9 Cases and What Lies Ahead for Municipal Distress in 2013") in which one of the panelists was Bankruptcy Judge Christopher M. Klein. Judge Klein is the judge in the pending Chapter 9 bankruptcy case of Stockton, California.
Or perhaps, by the time you read this, Stockton's bankruptcy will no longer be pending.
The city's bondholders have moved the court to dismiss the case because, they claim, it was not filed in "good faith." Why not? Because so far the city has continued to pay 100% of its retiree benefit contributions and held up payments to the bondholders. Indeed, it appears that Stockton is aiming to submit a plan for court approval under which it would continue to pay all retiree claims in full but bondholders as little of 70% of what's due. Unfair, the bondholders cry!
They're probably right but Judge Klein will decide whether unfair = bad faith over the weekend.
I must admit that some of my enthusiasm for governmental bankruptcy will dissipate if Stockton can get away with such disparate treatment of its creditors. Bankruptcy should not be a means to achieve political ends. (At least that's what I think; the General Motors bankruptcy is "Exhibit A" for what can go wrong when politics trumps the law.) Given the political dynamics of Detroit, we can expect to see similar treatment there if Stockton can prefer one set of creditors to another.
Not surprisingly, there's more in the stew of retirees vs. bondholders than I've described here. Yet the principle at work (pari passu for those who want to know) is fundamental to any insolvency regime. (Just ask folks in Cyprus.) Federally-mandated tweaking is one thing; blatant manipulation is another.
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