30 September 2013

Stockton Posturing?

I've been rather quiet about the bankruptcy of the city of Stockton, California of late. (Go here for my most recent post.) Today, however, Bloomberg News reports here on the  proposal the city's lawyers will be submitting to city council for approval. Assuming the proposal passes that hurdle, it off to the Bankruptcy Court.

As I argued in my paper Fairness and Risk in Stockton: Pensions, Bonds, and Taxes -- When Doing Nothing is Doing Well (download here), the inconsistencies inherent in Chapter 9 of the Bankruptcy Code will drive the parties to settle. And that seems to be happening: "Stockton has 'the outlines of a negotiated settlement' with creditor Assured Guaranty Corp., which insured $164.7 million in bonds that the city has said in the past it cannot fully repay."

That Stockton is proposing no impairment to its retirees is striking. That has been the city's position all along but that it could nonetheless get the bond insurers to settle for less than 100% is surprising. How much less is not yet known since "City officials didn’t disclose what it offered the bond insurer, saying in a staff report to the Stockton city council that they wanted to keep the details confidential until at least Sept. 30" because they haven't come to final agreement with the bond insurers.

The full proposal is available here. (It's only 266 pp. long.) I hope to read it over the next several days. You're welcome to read along.

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