By Jim Christie
SACRAMENTO, Calif., July 6 Demands that Stockton
put to creditors during failed talks that led the California
city to file for bankruptcy might be made public soon, the judge
in its Chapter 9 case said on Friday.
The first hearing in bankruptcy court in Sacramento,
California, of the largest U.S. city to seek protection from
creditors was quick and mainly procedural.
Judge Christopher Klein said the city could disclose what it
sought from creditors, but details from their pre-bankruptcy
talks could not be revealed yet.
"I am not of a mind to just open up the books," Judge Klein
Stockton may reveal "The Ask" - the nickname its lawyers
have given the city's proposals to creditors during three months
of confidential talks, said Klein.
Marc Levinson, the lawyer leading Stockton's legal team,
said the proposals may be made public on or before July 20.
Stockton, a city of 300,000 in the Central Valley, filed for
Chapter 9 bankruptcy protection in June after lengthy
confidential talks with creditors failed to produce concessions
to help it close a $26 million budget gap.
City leaders said the bankruptcy was unavoidable given the
severe revenue slump, high debt and expensive benefit
obligations to its employees and retirees. The city has proposed
defaulting on bond payments, cutting employee compensation and
scrapping lifetime medical benefits for retired employees to
save on costs.
After slashing more than $90 million in spending in recent
years to a point where city officials say further cuts would
endanger public safety, Stockton's bankruptcy plan calls on
bondholders, its employees and retirees to take a hit to help
bolster city finances.
STEP BY STEP
Bondholders, bond insurers, city unions and retirees are
preparing to fight Stockton in bankruptcy court, but at the
first hearing they and the city's legal team agreed to Klein's
plan for the initial steps.
These include a July 20 deadline for Stockton to explain why
it should be eligible for bankruptcy - which one of the city's
bond insurers might contest - followed by an Aug. 9 deadline for
Stockton's legal team and the city's creditors will then
meet in Klein's chambers on Aug. 23 for a hearing on sharing
"We'll make it work," said Levinson.
Levinson, who represented Vallejo, California, during its
three years in bankruptcy from 2008 to 2011, had hoped to lay
out as much information as possible about Stockton's
negotiations with its creditors.
But Klein favored an incremental approach, noting that he
did not want the details of the give and take of the
negotiations made public initially. He said it would be vital to
encourage ongoing talks between the city and its creditors so
any deals could speed up the bankruptcy proceedings if he deems
Stockton eligible for Chapter 9 protection.
Confidential talks between financially distressed
municipalities considering bankruptcy and their creditors are
required ahead of a bankruptcy filing as a result of state
legislation in the wake of Vallejo's filing.
Levinson noted that Stockton has reached tentative
agreements with two of its unions since filing for bankruptcy,
which may help the city's finances. The deals are expected to be
ratified by the end July.
This case is In re: City of Stockton, California, Debtor in
U.S. Bankruptcy Court, Eastern District of California,
Sacramento Division (Case No. 2012-32118)