01 April 2013

Stockton Lives To Fight Another Day

Only last week I posted some concerns here about the eligibility of the City of Stockton, California to maintain its Chapter 9 municipal bankruptcy.  Bankruptcy Judge Christopher M. Klein ruled on Monday that Stockton was not acting in bad faith by filing and continuing to pay 100% into California's retirement system while planning to short its bondholders. However, according to news reports Judge Klein made it clear that he "expects the issue of city payments into the pension system to be a major issue during the plan of adjustment phase of the case." In other words, the issue of disparate treatment of classes of creditors remains open and by his comments from the bench it seems clear that the judge has serious concerns about what the city has hinted it plans to do.

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