Bankruptcy Court Judge Christopher Klein yesterday approved the city of Stockton, Calif.'s petition for bankruptcy in a case that sets the stage for a lengthy battle between bondholders and the California pension system, Reuters reported yesterday. Judge Klein's decision was a setback for bondholders and insurers who had resisted the California city's bankruptcy filing. The judge also signaled that the California Public Employees Retirement System's position in the case was not above review. Stockton, a city of 300,000, has so far not reduced pension payments to retired city workers, although it has eliminated retiree healthcare benefits. Investors in the $3.7 trillion municipal bond market are concerned that if Stockton is able to avoid paying bondholders in full without cutting pension payments, other cities will pursue a similar strategy as they struggle to cope with budget shortfalls.
For additional information and analysis on the Stockton case and other chapter 9 filings, be sure to pick up a copy of Municipalities in Peril: The ABI Guide to Chapter 9, Second Edition in the ABI Bookstore.