Bankrupt California city wants deal with bond insurer by Thursday

Reuters

STOCKTON, Calif., Oct 1 (Reuters) - Stockton, California,hopes to have a deal with bond insurer Assured Guaranty byThursday, but if needed the city could impose a settlement tohelp it exit bankruptcy, its city manager said.

"We want consent," Stockton Manager Bob Deis said during apress briefing on Tuesday. "But it's not necessary."

Stockton released on Friday a draft plan for adjusting itsdebt to exit from municipal bankruptcy that maintains pensionobligations to city employees while paying some creditors lessthan they are owed.

Stockton's city council could approve the draft as soon as Thursday, opening the door for the city to file it as its exitplan with the judge hearing its bankruptcy case.

Creditors have to vote on the plan.

The draft plan said Stockton had the "outlines of anegotiated settlement" with Assured over $124.3 million inoutstanding pension obligation bonds that the city had targetedfor losses to restructure its finances.

No details were provided in the draft and Deis declined toelaborate on the talks with Assured. A spokeswoman said the bondinsurer had no comment.

Assured and fellow bond insurer National Public FinanceGuarantee led efforts by Stockton's so-called capital marketscreditors to block the city's bankruptcy case, saying citypensions managed by the California Public Employees' RetirementSystem should have been treated like other debt.

The draft plan also disclosed a preliminary deal withNational over $45.1 million in outstanding lease revenue bondsfor the city's arena whose payments will be cut by 3 percent.Other bonds related to parking garages will be cut by 12percent, while a third bond for a city building will be paid infull.

A spokesman for National declined to comment on theagreements.

Deis does not anticipate further opposition by the bondinsurers over Stockton's pensions.

"I expect that message to not be front and center," he toldReuters.

With about 300,000 residents, Stockton set itself apart fromDetroit, which has filed the U.S. largest municipal bankruptcy,and from smaller San Bernardino, because it intends to leavepension payments whole.

Stockton defended its pensions, and the $268 billion statepension fund was prepared to back that in bankruptcy court, withcuts to payrolls, as well as to benefits.

Stockton's retired employees are also contributing by givingup their city-provided medical care, Deis noted.

Stockton's plan for exiting bankruptcy assumes voters willapprove a sales tax increase in November to help bolster itsfinances and standing in bankruptcy court. If they do not, thecity would need to cut $11 million in spending, which would fallon libraries, community centers and fire houses, Deis added.

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