Business & Real Estate

Stockton, bond firm renew fight over city’s bankruptcy appeal

Bankrupt Stockton and its holdout creditor are fighting in court again, this time over the creditor’s plea to have the city’s debt-repayment plan put on hold while an appeal runs its course.

Barely a month after a judge approved the city’s proposal to pay its CalPERS pension contributions in full, while giving creditor Franklin Templeton Investments just 12 cents on the dollar, Stockton and Franklin are ratcheting up their legal skirmishing.

Franklin served notice earlier this month that it would appeal the judge’s decision. Then it went a step further, asking U.S. Bankruptcy Judge Christopher Klein to stop Stockton from implementing the plan while the appeal is heard.

Stockton’s lawyers, in court papers filed Wednesday, said delaying the repayment plan would be disastrous, keeping it from making an exit from bankruptcy.

The appeal “will likely take years to progress,” the city’s lawyers wrote. “The impact of such a lengthy stay on the city’s ability to resume its normal functioning would be dramatic and devastating to the city. … The city would have to put its financial and economic development planning on hold, would not be able to make payments to its creditors, some of whom desperately need the funds, and would continue to struggle to attract new businesses and retain employees, particularly police officers.”

The city filed for bankruptcy protection in 2012.

The case is being closely watched because of the implications for government pensions. Stockton and California’s other bankrupt city, San Bernardino, have said they will pay CalPERS in full even if it means some private-sector creditors get less than full satisfaction on their debts. Franklin, which stands to lose more than $30 million in the Stockton bankruptcy, wanted Klein to reject the city’s repayment proposal.

Klein refused Franklin’s request and gave his blessing to the city’s plan Oct. 30.

In his ruling, Klein said the city had the legal right to reduce its contributions to the California Public Employees’ Retirement System, currently more than $29 million a year. But the city decided to pay its CalPERS bill in full, reasoning that a reduction in payments would lead to substantial cuts in benefits paid to retirees.

Call The Bee’s Dale Kasler, (916) 321-1066. Follow him on Twitter @dakasler.