April 3 Moody's Investors Service said on
Wednesday that a judge's ruling that Stockton, California, is
eligible for bankruptcy provides legal clarity, but it leaves
bondholders and other creditors uncertain about ultimate
The decision about whether Stockton was eligible to file
for bankruptcy is just a first step in the case, in which
possible reductions to the $254 billion California Public
Employees' Retirement System will be a central issue in the
final plan of adjustment, Moody's said in a statement.
The Wall Street rating agency said Monday's federal court
decision did not affect Stockton's current ratings, which
already reflected expectations that the city would be deemed
eligible for bankruptcy.
"Our current Caa3 ratings are consistent with losses in the
20 to 35 percent range, and the negative outlook signals the
possibility of a downgrade if ultimate losses exceed this
range," the report said.
Since Stockton filed for bankruptcy in June 2012, the city
has missed payments on four outstanding series of bonds totaling
about $231 million. All of those bonds are insured.
Stockton's bankruptcy case will take months, if not years,
and other struggling local governments in California will watch
it closely, the rating agency concluded.