April 3, 2013 / 3:51 PM / in 5 years

UPDATE 1-Stockton, Calif., bankruptcy ruling provides some clarity-Moody's

April 3 (Reuters) - 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 recovery.

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.

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