By Jim Christie
SAN FRANCISCO, Sept 27 Stockton, California said
on Friday it had reached tentative deals with the two creditors
that led opposition to its bankruptcy, bond insurers that had
threatened to drag the state pension fund Calpers into their
fight with the city.
In a draft of its plan for exiting bankruptcy, Stockton said
it had the "outlines of a negotiated settlement" with bond
insurer Assured Guaranty over $124.3 million in outstanding
pension obligation bonds the city had targeted for losses.
The draft plan also disclosed a preliminary deal with bond
insurer National Public Finance Guarantee over $45.1 million in
outstanding lease revenue bonds for the city's arena that had
been in dispute.
The draft plan provided no details on the potential
settlement with Assured and a spokesman for the bond insurer
declined to comment.
The draft said Assured executive management had not yet
reviewed the deal.
"As this document was being finalized, the City was in
negotiations with this creditor and had developed the outlines
of a negotiated settlement," the draft said.
It also said a preliminary term sheet agreement had been
reached with National, along with agreements on other bonds
insured by it relating to parking garages and a city building.
National spokesman Kevin Brown confirmed the deal, telling
Reuters: "We're pleased to have reached a settlement agreement
with the City of Stockton that should expedite its exit from
National and Assured led efforts by Stockton's so-called
capital markets creditors to block the city's bankruptcy case
from moving forward, and they had insisted city pensions managed
by Calpers be treated like other debt the city wanted to impair.
The U.S. municipal bond market has been watching Stockton's
bankruptcy case closely for more than a year as the city had
been aiming to force bondholders to swallow losses while leaving
Alabama's Jefferson County in its bankruptcy restructuring
plan in June proposed losses for bondholders, becoming the first
local government to do so since the 1930s.
Pension costs are a growing concern for the $3.7 trillion
municipal debt market and National and Assured contested
Stockton's maintaining payments to Calpers, the California
Public Employees' Retirement System.
U.S. Bankruptcy Judge Christopher Klein in April found
Stockton eligible for bankruptcy protection and said the
showdown the bond insurers sought over payments to Calpers would
have to wait until the city filed its plan for adjusting its
debt to exit from bankruptcy.
Calpers, had been sidelined in Stockton's bankruptcy
proceedings but was prepared to help the city defend its pension
A spokeswoman for the $269 billion pension fund released a
statement hinting at a truce with Stockton's capital market
"We are hopeful this proposed plan of adjustment will allow
Stockton to regain its footing and continue to provide the
essential services to its citizens," the statement said.
Stockton's draft plan said the city would keep paying into
Calpers, noting it would "reform and reduce the costs of its
pension program along with other post-employment benefits, but
retain the basic Calpers pension which is crucial to the City's
ability to recruit and retain a quality workforce."
Stockton's city council will take up the draft on Oct. 3 and
the city could file a final plan with Klein early next month.
With about 300,000 residents, Stockton was the most populous
U.S. city to file for bankruptcy until Detroit filed in July.