SACRAMENTO, Calif. Feb 26 The city of Stockton, California, said on Tuesday it reached a deal on $21.6 million in debt payments with Ambac Assurance Corp just ahead of a court hearing on its eligibility for municipal bankruptcy protection.
Ambac is the insurer for certificates of participations that Stockton issued in 2003 to finance housing projects.
The agreement puts "a cap on the amount of money that could be paid each year out of the city's General Fund, provides for use of the reserve fund to pay some of the debt obligation and, if necessary, extends the term of repayment," the city said in a statement.
The agreement allows Stockton, located 85 miles east of San Francisco, to maintain essential public services such as the police station, fire stations and a library, the statement said.
Later on Tuesday, Chief Bankruptcy Judge Christopher Klein will take up the issue of Stockton's eligibility for bankruptcy, a move contested by some bond insurers of the city's debt.
Bond insurers National Public Finance Guarantee Corp and Assured Guaranty have more than $350 million of exposure to Stockton's debt and oppose the city continuing payments to the state's pension fund for public employees -- the California Public Employees Retirement System -- while halting payments to some bondholders.
"Rather than responding with an unreasonable and expensive, litigation-intense strategy, as some creditors have done, Ambac diligently worked with the city to achieve a consensual resolution," Stockton City Manager Bob Deis said in the statement.
"This agreement is an example of what can be accomplished during the city's bankruptcy with creditors who are willing to engage in meaningful negotiation," Deis said.
Stockton, a city of 300,000, filed for municipal bankruptcy in June with a plan to impair nearly $200 million of its debt.
Hard times set in for Stockton when its revenue plunged after its once torrid housing market went bust. Two decades of generous employee benefits, poor fiscal management and too much debt also caught up with the city.