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MBIA Inc. Message Board

  • dhhtuis23 dhhtuis23 Aug 9, 2012 5:46 PM Flag

    Reuters article just filed on MBIA objection over Stockton CA bankruptcy

    Bond insurer contests Stockton bankruptcy over
    pensions
    4:51pm EDT
    By Peter Henderson and Jim Christie
    SAN FRANCISCO (Reuters) - A unit of bond insurer MBIA Inc challenged the
    California city of Stockton's eligibility for bankruptcy, making an argument -- that
    the city can cut pension benefits -- with potentially profound implications for the
    state.
    The bond insurer in a court filing said the city's failure to ask for concessions
    from the California Public Employees' Retirement System pension fund showed
    that it had not negotiated with creditors in good faith, and it argued that the city's
    plan for recovery was doomed because it did not touch pensions.
    The filing sets a roadmap for a battle, in or out of bankruptcy court, in which Wall
    Street takes on the largest public U.S. pension fund, Calpers, as troubled cities
    and counties watch the outcome closely.
    Calpers has used warnings of court battles to dissuade municipalities from
    considering pension benefit cuts, but retiree benefits are constricting many cities. San Bernardino, California also faces major
    pension obligations and is following Stockton's bankruptcy path.
    "It's the equivalent of a declaration of war (on pensions)," said Karol Denniston, a San Francisco lawyer who helped draft California'
    bankruptcy process law, said of the filing. "It affects every municipality looking to restructure."
    The city of Stockton did not immediately respond to requests for comment. A lawyer for Stockton previously had said that bond
    insurers had not even made counterproposals to the city during pre-bankruptcy negotiations as mandated by state law.
    Calpers provided information to the city during the talks, spokesman Brad Pacheco said by email. "We remain committed to
    safeguarding the constitutionally protected pension benefits of the city's employees and retirees," he added.
    A federal judge must approve Stockton's eligibility for Chapter 9 protection before the city can reorganize its debts under court
    protection, and a primary criterion is whether the city made a real effort to avoid a bankruptcy filing.
    "The city has not presented evidence that it negotiated with its creditors equitably and thus, in good faith," National Public Finance
    Guarantee Corp, a unit of MBIA, wrote in the filing. (link.reuters.com/zyv89s)
    The company, which insured nearly $94 million of the city's revenue bonds, said Stockton had not negotiated with Calpers at all,
    and that its initial proposal to creditors, called 'the Ask,' showed a financial shortfall for 2013-14, even after bond payments were
    cut.
    The insurer said that was because of plans to keep making full pension fund payments. Those pension payments represent a
    financial liability, like debt service payments, and should be treated equally, it said.
    "The protection of Calpers benefits for the mayor, city council and other city employees is clearly not in good faith," it added...

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