Lawyers for Stockton, California will appear for the first time in a Sacramento court this week to make their case for protecting the city from its creditors in bankruptcy.
Stockton, a city of nearly 300,000 in California’s Central Valley, filed for Chapter 9 bankruptcy last week.
Its legal team has been scheduled to appear in U.S. bankruptcy court on Friday, July 6, in the first hearing of the city’s case (Case No. 2012-32118), one of their lawyers said on Monday.
Attorney Marc Levinson, who also represented Vallejo, a California city that recently exited from bankruptcy, said a judge for the case had not yet been appointed.
Stockton is seeking court approval for its 2013 fiscal year budget. The $155 million spending plan relies on closing a $26 million deficit largely with defaults on bond payments, cuts to employee compensation and eliminating the city’s medical insurance program for its retired workers.
Bond insurer Assured Guaranty Ltd put Stockton on notice on Friday that it would fight the city in bankruptcy court, noting it believes Stockton had alternatives to bankruptcy to restructure its finances.
Assured Guaranty has $161.4 million of insured exposure to Stockton through its Assured Guaranty Corp. and Assured Guaranty Municipal Corp. subsidiaries.
“We volunteered our team of municipal turnaround experts,” Assured Guarantee said in a statement, “to offer a plan that would have allowed the City to avoid filing for bankruptcy.”
Following a California law, Stockton held three months of negotiations with creditors that failed to produce enough concessions to close the city’s budget gap by the time the deadline for the talks expired last week.
“Since the City Council has not engaged in any meaningful effort to initiate revenue enhancement, asset sales or pension reform, it is questionable whether the City has taken all steps necessary and available to meet the stringent eligibility criteria for filing a bankruptcy petition under chapter 9,” the Assured Guarantee statement said.
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