No more California bankruptcies seen this year -S&P
* Most credits are doing well - analyst
* Stockton's plan may be ready as soon as July
* Pensioners versus bondholders
By Jim Christie
SAN DIEGO, May 2 (Reuters) - After California stunned the $3.7 trillion municipal debt market last year with three bankruptcy filings, analysts at Standard & Poor's do not expect any more - this year.
Local government finances in California are improving and concerns of more municipal bankruptcies popping up in the most populous U.S. state are overdone, said S&P analysts, speaking on Wednesday on the sidelines of the annual National Federation of Municipal Analysts conference in San Diego.
So far this year there have been no signs of potential muni bankruptcies, said S&P analyst Gabriel Petek, while S&P analyst Matthew Reining said that "We believe most credits are doing quite well."
S&P's David Hitchcock added that local revenues should pick up as California's housing markets improve. He also said that despite the growing attention to rising pension spending local governments should be able to manage it.
Stockton, Mammoth Lakes and San Bernardino, California filed for creditor protections under Chapter 9 municipal bankruptcy law in 2012.
A city of 300,000, Stockton is the biggest U.S. city to file for bankruptcy and how it has proposed repairing its finances has put it at odds with its so-called capital market creditors.
Bondholders and bond insurers are particularly concerned about its plan to maintain its pension payments to the California Public Employees' Retirement System while trying to impose losses, or so-called haircuts, on city debt in their portfolios.
U.S. Bankruptcy Judge Christopher Klein last month said the issue of Stockton's pension payments would have to wait for a review, provided the city keeps them up in its plan to adjust debts.
Stockton may file that adjustment plan as soon as July.
Growing public pension expenses for local governments in California and elsewhere have become a concern for municipal debt analysts in recent years.
"It's an obligation. To that extent it competes a little bit with debt service," said John Hallacy, a managing director at Bank of America Merrill Lynch and its manager of muni bond research.
Lawyers for Stockton's bond insurers led the court challenge to the city's bankruptcy eligibility and are now preparing to fight if the city's plan excludes pension payments and demands creditors swallow losses.
That's controversial for the muni debt market, whose investors buy its bonds assuming payments are relatively safe from default.
Stockton says the state pension fund is not a creditor.
Before filing for bankruptcy, Stockton cut $90 million in spending in response to a sharp drop in revenue caused by the implosion of its once sizzling housing market.
City officials opted for bankruptcy in the face of $26 million deficit that they said they were unable to close without deeper cuts that would endanger safety in the crime-plagued city. They have also defended pension spending as a way to retain and recruit employees, especially police officers.
Steven Kreisberg, head of collective bargaining for the American Federation of State, County and Municipal Employees, defended Stockton's pension payments at the NFMA conference, saying Stockton's workers had suffered financially.
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