(Adds judge's comments about Calpers)
By Robin Respaut
SACRAMENTO, Calif., July 8 The judge in
Stockton, California's bankruptcy on Tuesday ruled that the city
has collateral worth $4 million with which it could pay holdout
creditor Franklin Templeton, dismissing the city's contention
its collateral was worthless.
At the same time, U.S. Bankruptcy Judge Christopher
Klein made no ruling on Tuesday on whether the California Public
Employees' Retirement System, or Calpers, should be made to
accept less than the entire amount it is owed while bondholders
take losses in the case.
Klein's ruling on the collateral in the case of Stockton,
which filed for bankruptcy in June 2012, followed a trial that
concluded last month and centered around Franklin's objection to
the city proposing to repay it less than a penny on the dollar
for a debt of about $36 million.
The city's collateral against bonds held by Franklin
includes two golf courses, a community center and a park, which
the city had estimated had no value while Franklin had pegged
their value at $6.12 million to $17.34 million.
"Of course one of the problems with appraisals is everyone
comes in with an appraisal that supports their position," Klein
said from the bench on Tuesday. "Judges have long figured out
that they need to be skeptical with their opinions."
Klein challenged Calpers, Stockton and its public employees
to counter his reading of the California Public Employees'
Retirement Law, which he understood to spell out that Calpers
itself could not be impaired in bankruptcy but employees'
pensions could be.
"It seems to me if you're going to take away part of an
individual's pension, the individual employee is the creditor
and Calpers is in effect a servicing agency," said Klein. "It
looks to me like Calpers does not bear the financial risk of a
shortfall in payments. Instead the structure of the (law) places
that risk on the employee."
Klein questioned a $1.6 billion termination fee that Calpers
has said it could impose on Stockton if the city ended its
contract with the $285.2 billion pension fund.
"It really makes me wonder whether this so-called lien is
the kind of thing that could be enforced," said Klein. "I'm
going to need some explanation about why I should take that lien
The question of how Calpers, the largest U.S. pension fund,
should be treated is of keen interest for investors and bond
issuers in the $3.7 trillion U.S. municipal bond market.
The treatment of pension systems has been uneven in the
handful of recent municipal bankruptcy cases.
In the case of Detroit, the largest-ever Chapter 9
insolvency case that will go to trial later this summer, the
city has proposed that city pension funds share some of the
But in Vallejo, California, which emerged from bankruptcy in
2011, Calpers was left whole.
The next hearing is scheduled for Oct. 1.
(Reporting by Robin Respaut; Writing by Dan Burns; Editing by
Andrew Hay and Lisa Shumaker)