In a blow to municipal bondholders, a judge rules Stockton, CA eligible for bankruptcy...


In a blow to municipal bondholders, a judge rules Stockton, CA eligible for bankruptcy protection. The ruling let's stay the city's decision to keep pensions intact while imposing losses on those holding the town's paper. Jefferson County, AL and San Bernardino, CA - along with other municipalities - are watching closely. Bond insurer Assured Guaranty (AGO) slides 3.3%.

Comments (16)
  • phertz1
    , contributor
    Comments (39) | Send Message
     
    This was a local judge. The case will wind itself into federal court and I will be amazed if the pension obligations will remain untouched while bondholders are busted!
    1 Apr 2013, 03:51 PM Reply Like
  • rambler1
    , contributor
    Comments (1019) | Send Message
     
    It's amazing the pensions and the salaries are part of the problem, and should be changed accordingly.
    1 Apr 2013, 04:02 PM Reply Like
  • caupachow
    , contributor
    Comments (524) | Send Message
     
    phertz; get ready to be amazed! there are many "amazed" chrysler and gm bondholders.
    1 Apr 2013, 05:24 PM Reply Like
  • justaminute
    , contributor
    Comments (1636) | Send Message
     
    Pensions are backed by US taxpayers. I'd be surprised if the costs of these outlandish pensions weren't socialized.
    1 Apr 2013, 11:52 PM Reply Like
  • JohnBinTN
    , contributor
    Comments (4428) | Send Message
     
    I think/thought state/city pensions can be 're-worked' in bankruptcy... Although the GM thing shows that bankruptcy law can be thrown out the window on a whim.
    2 Apr 2013, 12:18 AM Reply Like
  • davidbdc
    , contributor
    Comments (3194) | Send Message
     
    They can be, although any plan has to be approved by the court. I'm not familiar with CA state law but I suspect public union pensions are probably heavily protected. Thus the bondholders were trying to get Stockton to cut the pensions and try to avoid BK.

     

    Now that they will enter BK, Stockton has to put forth a plan and then the games begin. I would expect some minor pension concessions (like not being able to count saved vacation time as part of your final year's compensation to determine your pension going forward, but likely only for new employees going forward). There will eventually be some political pressure on CALPERS to negotiate as otherwise lending costs in CA will begin to rise.
    2 Apr 2013, 12:29 AM Reply Like
  • JohnBinTN
    , contributor
    Comments (4428) | Send Message
     
    If CALPERS has to eat a small amount of crow, bully for Stockton going under. CALPERS is worse than the mob. The state as a whole will BK eventually, and CALPERS is where the fingers should be pointed when that happens.
    2 Apr 2013, 12:37 AM Reply Like
  • davidbdc
    , contributor
    Comments (3194) | Send Message
     
    My understanding is that this is just the first step. Now that they can enter BK, they have to put forth a "plan of adjustments" - at which time the creditors will again go after the pension payments.

     

    I do believe the creditors have more leeway during those procedings. They were trying to prove bad faith based on the conflict of interest that exists since the Stockton public employees negotiating are also going to receive pension payments. While its a conflict its a long way from bad faith.

     

    All are going to lose. First the citizens have seen services massively reduced as a result of this gross mismanagement (though you have to point out they kept electing the bums). Stockton has a high crime rate. Second, bondholders that kept shovelling money to a place where they paid bureaucrats stupid wages and benefits made poor investment decisions and deserve the losses they will incur. And third, the public employees will see some sort of pension cuts in addition to the retirement health care cuts (though to be straight - the plan they had was better than gold-plated!).

     

    When that happens this may then be used by other local governments to enforce a re-balancing of public employee pay and benefits that is in line with the private sector. That would be a very good thing.
    1 Apr 2013, 04:05 PM Reply Like
  • RSI Raistlin
    , contributor
    Comments (476) | Send Message
     
    Great points all around David. For once its good to see someone recognize the faults of all parties and not lay it on the laps on one group or another. It is a horrible situation for all involved citizens will likely have multi-year maximum tax hikes, bond-holders lose quite a bit of their investment and the juicy dividend they were being paid, and employees will see contribution hikes health care increase layoffs etc. Funny thing how those politicians simply MAY not get reelected, no real pain for their gross mismanagement
    1 Apr 2013, 09:20 PM Reply Like
  • 481086
    , contributor
    Comments (3431) | Send Message
     
    'course the folks that already collect/collected all those obscenely fat salaries, bonuses, accrued sick and leave time, and very handsome pensions... they'll be quite happy.
    1 Apr 2013, 09:59 PM Reply Like
  • villashaka
    , contributor
    Comments (47) | Send Message
     
    As a Californian I am watching this with exit plans in place- The Calpers and Calstrs need a head slap if they do not see the damage their greed will cause by making themselves omnipotent to all, what fools will buy muni debt in the future ? I guess organized crime comes in many forms.
    1 Apr 2013, 04:05 PM Reply Like
  • 2tdallen
    , contributor
    Comment (1) | Send Message
     
    Seems the fox is in charge of the hen house.
    1 Apr 2013, 04:08 PM Reply Like
  • The Long Tail of Finance
    , contributor
    Comments (1719) | Send Message
     
    Those Stockton bonds which were insured at issuance are still peforming, and should continue to do so short of any major issues with the insurers (National Re, Assured Guaranty, and Ambac).
    1 Apr 2013, 04:14 PM Reply Like
  • HPBunker
    , contributor
    Comments (217) | Send Message
     
    Forget Stockton (unless you're a bondholder or insurer); this is small potatoes. Watch out for the whole darn state of Illinois...
    1 Apr 2013, 06:38 PM Reply Like
  • deercreekvols
    , contributor
    Comments (9615) | Send Message
     
    I am hoping that this does not trigger a domino effect with more cities and towns declaring bankruptcy.

     

    Is this the tip of the iceberg?
    1 Apr 2013, 08:07 PM Reply Like
  • JohnBinTN
    , contributor
    Comments (4428) | Send Message
     
    I'd like to see how this one pans out, then I may hope that there are many more in the pipe. These pensions need to to be reeled in (and in some cases clawed back, if that's at all legal).
    1 Apr 2013, 08:19 PM Reply Like
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