SAN FRANCISCO, March 27 A former U.S. bankruptcy
court judge will oversee negotiations between Stockton,
California, and its creditors that may help the city avoid
having to file for bankruptcy, a spokeswoman said on Tuesday.
Ralph Mabey, senior counsel with the Los Angeles law firm of
Stutman Treister & Glatt, was selected as mediator by Stockton
officials and those invited to the negotiations, which will be
confidential, the city's spokeswoman said in a statement.
Mabey served as a U.S. bankruptcy judge from 1979-83 and
then founded LeBoeuf, Lamb, Greene & MacRae, the international
bankruptcy practice now known as Dewey & LeBoeuf llp.
Stockton's spokeswoman last week said the following will
join mediation along with city bargaining units and a group
representing retired city workers: Assured Guaranty; the
California Public Employees' Retirement System; Dexia Credit
Local, New York branch; Franklin Advisers Inc; National Public
Finance Guarantee Corp; Union Bank; the U.S. Department of
Housing and Urban Development, and Wells Fargo & Co.
Mediation, which may last up to 90 days, is required under a
state law approved after Vallejo, California's 2008 bankruptcy
and is intended to give local governments with severe financial
distress an opportunity to seek concessions to shore up their
If Stockton is unable to win sufficient concessions, it
could still file for Chapter 9 bankruptcy. If the city of
292,000 people located about 85 miles east of San Francisco does
declare bankruptcy, it will become the biggest U.S. city ever to
Stockton's city council last month endorsed a financial
restructuring plan that includes mediation and, to the dismay of
many in the U.S. municipal debt market, defaulting on about $2
million in debt payments during the remainder of the current
fiscal year through June.
Separately on Tuesday, Moody's Investors Service cut its
credit ratings on about $341 million of Stockton's debt,
including its pension obligation bonds, citing concerns the city
may default as it heads into mediation.
Moody's lowered Stockton's 2007 pension obligation bonds to
B3 from B1 and the city's 2006 lease revenue refunding bonds to
Caa1 from B2 and said the city's long-term ratings remain under
review for further downgrades.
Moody's also affirmed Stockton's Ba2 issuer rating. The
rating agency lowered the rating to that speculative-grade level
last month after Stockton's city manager said he would urge the
city council to suspend some debt payments.
Stockton faces a budget gap in the range of $20 million to
$38 million, the result of a steep plunge in revenues due to a
severe local housing slump.
According to Stockton's city manager, the city's finances
are also at the breaking point due to two decades of fiscal
mismanagement by city officials and because the city took on too
much debt and provided overly generous pay and benefits for
municipal employees and retirees.
(Reporting by Jim Christie, Editing by Gary Crosse)