A verbal ruling on whether Stockton, Calif., is eligible for chapter 9 protection will likely come next Monday, Bankruptcy Judge Christopher Klein said yesterday, the third and final day of a trial on the matter, Reuters reported yesterday. Judge Klein said that he would need more time than anticipated to make a ruling over whether Stockton should be allowed to press on with its bankruptcy case, which could result in bondholders and bond insurers of the city swallowing losses while leaving pensions of city workers and retirees intact. Stockton aims to aggressively impair its bond debt if found eligible for bankruptcy court protection, a strategy other cash-strapped municipalities could follow. But pursuing such a strategy would break a tradition in the $3.7 trillion municipal bond market, which provides financing for various public capital projects, from school construction to sidewalk repairs. Since at least the 1930s, bondholders in major municipal bankruptcies have consistently repaid their entire principal. If Stockton establishes it is eligible for bankruptcy protection, other financially troubled municipalities could follow its example and try to adjust debts through bankruptcy.
