Stockton, Calif. eligible for municipal bankruptcy protection-judge

SACRAMENTO, April 1 Mon Apr 1, 2013 3:09pm EDT

SACRAMENTO, April 1 (Reuters) - Stockton, California, was ruled eligible for bankruptcy protection under Chapter 9 of the U.S. bankruptcy code, a U.S. judged said on Monday, turning aside creditors' arguments that the city was not truly insolvent when it sought protection last year and had improperly failed to seek concessions.

In a case that has been widely watched by the $3.7 trillion municipal bond market, U.S. Bankruptcy Judge Christopher Klein said Stockton had established during last week's three-day trial that it had met requirements to be found eligible to proceed with its municipal bankruptcy case.

Officials in the city of nearly 300,000, the largest city so far to have filed for municipal bankruptcy, will now be allowed to start drafting a so-called plan of adjustment for the city's debts.

The case is expected to pit municipal bondholders against the California Public Employee Retirement System, which manages pensions for Stockton and many other California governments.

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