The bankrupt city of Stockton, Calif., will face off against a holdout creditor this week in a closely watched municipal bankruptcy case pitting the rights of impaired bondholders against retirees and other creditors, Reuters reported yesterday. At issue is whether the northern California city, which filed for chapter 9 bankruptcy protection almost two years ago, can effectively wipe out the claims of one creditor while treating others far more favorably and leaving city employee pensions untouched. The main objector to the city's plan of adjustment is the investment firm Franklin Templeton, whose Franklin High Yield Tax-Free Income Fund and Franklin California High Yield Municipal Fund would receive less than a penny on the dollar. During a four-day trial kicking off today, Bankruptcy Court Judge Christopher Klein is poised to determine whether Stockton's exit plan is feasible and fair. He'll also weigh the long-term burden of the city's pension obligations and oversee the dispute with Franklin.
