As I've argued elsewhere, the bankruptcy court should not confirm a municipal plan of adjustment that "unfairly discriminates" among creditors. That is, unless the creditors agree.
Stockton's current plan proposed to pay one set of creditors--retirees--100% of what they're owed and another-the Franklin Bond Funds--barely pennies on the dollar. Franklin has objected and a four-day trial concluded last week.
Following my advice (j/k), Stockton has amended its plan to provide the potential of greater payment to Franklin. You can read about it here in Ed Mendel's excellent blog, CalPensions.
But just one problem: I continue to believe that Stockton's plan is unconfirmable over Franklin's objection, even with this latest modification, unless Stockton cuts payments to CalPERS, which manages pension payments to Stockton's retirees. To the extent they're unfunded, the claims of retirees have no greater claim to a share of Stockton's future revenues than any other unsecured creditor such as Franklin. Stockton's retirees may need the money more than Franklin's bondholders but that doesn't matter; Chapter 9 of the Bankruptcy Code makes no provision giving retirement benefits a priority over other claims. (Other chapters of the Code make such a provision and perhaps Congress should amend Chapter 9 but it hasn't--yet.)
I make this argument at greater length in my article Municipal Bankruptcy: When Doing Less Is Doing Best, 88 Amer. Bankr. L.J. 85 (2014), which, sadly, is still available only behind the WestLaw and Lexis-Nexis paywalls. But stay tuned; it will soon be up for all to read.
Stockton's current plan proposed to pay one set of creditors--retirees--100% of what they're owed and another-the Franklin Bond Funds--barely pennies on the dollar. Franklin has objected and a four-day trial concluded last week.
Following my advice (j/k), Stockton has amended its plan to provide the potential of greater payment to Franklin. You can read about it here in Ed Mendel's excellent blog, CalPensions.
But just one problem: I continue to believe that Stockton's plan is unconfirmable over Franklin's objection, even with this latest modification, unless Stockton cuts payments to CalPERS, which manages pension payments to Stockton's retirees. To the extent they're unfunded, the claims of retirees have no greater claim to a share of Stockton's future revenues than any other unsecured creditor such as Franklin. Stockton's retirees may need the money more than Franklin's bondholders but that doesn't matter; Chapter 9 of the Bankruptcy Code makes no provision giving retirement benefits a priority over other claims. (Other chapters of the Code make such a provision and perhaps Congress should amend Chapter 9 but it hasn't--yet.)
I make this argument at greater length in my article Municipal Bankruptcy: When Doing Less Is Doing Best, 88 Amer. Bankr. L.J. 85 (2014), which, sadly, is still available only behind the WestLaw and Lexis-Nexis paywalls. But stay tuned; it will soon be up for all to read.
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