Stockton, Calif., won permission to exit bankruptcy by paying certain investors less than they’re owed, and as a result, other localities in the state may see borrowing costs increase, Bloomberg News reported yesterday. In the proposal approved by a judge in October, Stockton’s certificates of participation, which are securities backed by leases, stand to deliver varying recovery rates as the city shields pensioners. By deterring investors in this type of debt, the outcome may raise interest rates for some California governments using the financial tool, said Matt Fabian at Municipal Market Advisors and James Iselin at Neuberger Berman. The municipal market has earned 9.4 percent this year, the most since 2011, Bank of America Merrill Lynch data show. With lower-rated credits and projects that may not be essential, “it’s going to be much harder for them without adding a meaningful yield premium to entice investors,” said Iselin, who helps manage about $10 billion as head of munis in New York.
