Reuters: Bankruptcy News: Muni insurers, Calpers join Stockton, Calif. talks

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Muni insurers, Calpers join Stockton, Calif. talks Mar 22nd 2012, 01:18 SAN FRANCISCO, March 21 | Wed Mar 21, 2012 9:18pm EDT SAN FRANCISCO, March 21 (Reuters) - Insurers of bonds issued by Stockton, California and the state's pension fund for public employees are among the parties entering into a pre-bankruptcy mediation with the city, officials said on Wednesday. Mediation is required under a new state law before financially troubled local governments can file for bankruptcy. The law, approved in the wake of Vallejo, California's controversial 2008 bankruptcy, requires talks that may last up to 90 days. Stockton officials are organizing confidential talks as part of the financial restructuring plan that the city's elected leaders approved late last month to prevent the city of 292,000 about 85 miles east of San Francisco from becoming the biggest U.S. city to file for bankruptcy. Mediation is intended to give officials of distressed local governments an opportunity to seek concessions from major bondholders, bond insurers, employees and retirees. A statement released by Stockton's spokeswoman said the following will join mediation along with city bargaining units and a group representing retired city workers: Assured Guaranty; the California Public Employees' Retirement System; Dexia Credit Local, New York branch; Franklin Advisers Inc; National Public Finance Guarantee Corp; Union Bank; the U.S. Department of Housing and Urban Development; and Wells Fargo & Co. If Stockton fails to win concessions to bolster its finances - the city faces a budget gap in the range of $20 million to $38 million - it could proceed with a bankruptcy filing. A mediator is yet to be selected. Stockton's finances are in disarray due to plunging revenue, the result of the collapse its once red-hot housing market, and due to generous pay and benefits for city workers and retirees, ill-advised projects, too much debt and two decades of fiscal mismanagement, according to the city's manager. Stockton's city council, after a six hour meeting on Feb. 28, approved the financial restructuring plan that the city manager had unveiled a few days earlier. The move prompted some concern in the U.S. debt market as it called for mediation and has the city defaulting on about $2 million in payments for debt sold in 2004, 2007 and 2009 through the end of its current fiscal year in June. Wells Fargo & Co is the trustee on each of the debt issues and has sued Stockton for missing its Feb. 28 payment on its $32.8 million of 2004 parking facilities debt. In response to the Stockton's financial restructuring plan, Moody's Investors Service lowered the city's general fund-supported debt ratings to below investment grade, a move affecting about $341 million in debt, and Standard & Poor's has taken Stockton's issuer credit rating down to one notch above 'D', the bottom speculative-grade level. Link this Share this Digg this Email Reprints

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