July 6, 2012 / 11:50 PM / 7 years ago

UPDATE 1-Stockton bankruptcy talks may soon be made public

By Jim Christie

SACRAMENTO, Calif., July 6 (Reuters) - 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 said.

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.


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 objections.

Stockton’s legal team and the city’s creditors will then meet in Klein’s chambers on Aug. 23 for a hearing on sharing information.

“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)

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