Paging Meredith Whitney......


http://www.sacbee.com/2012/07/06/4615074....


Bankruptcy case begins for California city of Stockton
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By SAM STANTON
McClatchy Newspapers
By SAM STANTON
Last modified: 2012-07-07T03:04:14Z
Published: Friday, Jul. 6, 2012 - 1:00 am
Copyright 2012 . All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

SACRAMENTO, Calif. -- Stockton's historic bankruptcy case began Friday with a Freudian slip, as the city's lawyer introduced himself in court as representing "the city of Vallejo."

Attorney Marc A. Levinson caught himself, threw his arms up and started over.

After years of guiding Vallejo, Calif., through its own bankruptcy proceeding, Levinson's slip could be forgiven as he now embarks on handling the case for the largest city in U.S. history to file for bankruptcy.

A Sacramento attorney, Levinson was one of several lawyers to appear in federal bankruptcy court Friday morning in downtown Sacramento for the start of what promises to be lengthy proceedings.

Since Stockton filed its Chapter 9 bankruptcy petition June 28, nearly 200 documents or exhibits already have been filed in court as creditors, bondholders, public worker unions and others seek to ensure they are not left out of any eventual agreement.

On Friday, court officials had prepared for a large turnout, with directions to the seventh-floor courtroom posted around the federal courthouse, an overflow room set up for attendees who could not fit into the courtroom and three rows reserved for members of the media.

When the hearing commenced, however, there was only a handful of reporters and fewer than 30 people seated in the court, most of them lawyers for the city's creditors.

Judge Christopher M. Klein opened court by asking lawyers for the many creditors to make their appearances brief at this early stage.

"I don't have time for a speech," Klein told them. "I'm a bankruptcy judge, it's impossible to educate me."

The hearing was devoted largely to technical matters and a discussion of whether aspects of the case should remain confidential.

Levinson said the city has established a public website for Stockton's 290,000 residents to keep abreast of the proceedings and view selected court documents (www.stocktongov.com), as well as a confidential website for parties to the case.

He added that Stockton prefers to keep as much as possible public as the case moves forward.

Klein said he agreed that matters such as the date and subject of meetings between creditors and the city should be public but that details of negotiations or offers made between the two sides should remain confidential for a time.

"We wanted to disclose everything," Levinson said after court. "'Open kimono' is the technical term, and the judge didn't want to go that far. I can't say that's unreasonable."

Stockton's financial problems stem in part from a spending spree the city undertook during the housing boom that left the municipality unprepared for the economic crisis that hit the nation in 2008.

"The city has been grappling with massive budget deficits for the past several years," Stockton's bankruptcy petition states.

This fiscal year, Stockton is projecting a $26 million budget shortfall, with annual deficits of $47 million projected within three years.

Friday's hearing was largely procedural and Klein ordered a status conference to be held Aug. 23.

The case is expected to take months to resolve, and Levinson noted in court that the number of documents to be filed by the city shortly is enormous.

"Unfortunately, you ain't seen nothing yet," he joked. "We believe we have broken the federal computer system.

"I believe the computer system at the Pentagon has been down for a week because of this."

Lawyers for creditors and others ranging from the Stockton Police Officers' Association to the U.S. Department of Housing and Urban Development were either in the courtroom or patched through by telephone to keep tabs on the hearing.

Creditors and public employee unions trying to protect pensions and benefits negotiated during better times are heavily invested in the outcome of the case, which is expected to be negotiated among the parties and eventually approved by the judge.

"I think this is going to be a very interesting process," Donna Parkinson, who represents Stockton's police union, said after court. "The whole point is to end up with a fair and equitable plan."


Read more here: http://www.sacbee.com/2012/07/06/4615074....

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Stockton Bankruptcy Puts Muni Market on Edge

By KELLY NOLAN And MIKE CHERNEY

Stockton's bankruptcy case is making some municipal-bond market participants queasy—and for good reason: If the California city gets its way, it will become one of the first local governments to use the federal bankruptcy process to impose potentially big cuts on its bondholders.

"There's no history of any significant give-up" for local government bondholders in bankruptcy, according to bankruptcy attorney Jim Spiotto, who has studied the history of such cases. Given Stockton's already aggressive attitude toward bondholders, "we'll have to see, is this a tipping point, or is it an aberration?"

Market participants are nervous because the city of 300,000, an agricultural center about 80 miles east of San Francisco, skipped payments on bonds earlier this year and plans to continue that pattern while it reorganizes its debts in bankruptcy.

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Associated Press

The Bank of Stockton in Stockton, Calif., the largest U.S. city ever to file for bankruptcy.

A budget for the city's current fiscal year, which started July 1, calls for the city to forgo about $10 million in debt payments. The city filed for bankruptcy protection in federal court in Sacramento on June 28.

"They are citing debt as part of the problem and have made comments to the effect of 'We are trying to spread the pain around and not just put it on employees,' " said John Miller, managing director and co-head of global fixed income for Nuveen Asset Management, whose firm owns roughly $8 million of Stockton lease-revenue debt. "That is different from prior recent municipal bankruptcies, like Vallejo, Calif., and Central Falls, R.I., where they have made more of an effort to say 'We want to keep bondholders whole, or at least keep principal intact.' "

Mr. Spiotto said data show that local governments rarely file for bankruptcy protection because they are fearful a filing could hamper their ability to borrow money for future projects. There have been only 51 filings from cities, counties, towns and villages since 1980, Mr. Spiotto said. However, 12, or nearly a quarter, of those filings have come since the economy soured in 2008.

"Chapter 9 is just a process; it's not a solution," Mr. Spiotto said. It "doesn't solve the issue of a bad economy, housing problems or unfunded pension obligations."

Stockton officials have said that the bankruptcy filing was a last resort and that the city had no other choice but to skip bond payments.

"We have made massive service and staffing cuts to a city that was already receiving extremely modest service levels," City Manager Bob Deis said in a memo to city council members. "Further reductions to service levels would not only jeopardize the safety of residents, they also would severely limit this city's chances for economic improvements."

Lyle Fitterer, managing director at Wells Capital Management, doesn't own any Stockton debt but said he is concerned about the implications of the city's combative behavior toward bondholders.

"There's a municipality's ability to pay and its willingness to pay," he said. "Stockton has communicated to the investment world it may not have the willingness to protect bondholders."

Mr. Fitterer also is worried about the effectiveness of the California law that mandates a 60- to 90-day mediation process before bankruptcy, since the first two localities that went through mediation, Stockton and resort town Mammoth Lakes, have both filed for Chapter 9.

"It's a huge concern, and we've expressed that concern to state officials as investors in California debt," Mr. Fitterer said.

While states like Michigan have helped their struggling municipalities and kept them out of bankruptcy, "California unfortunately so far, has said, 'We have our own problems and we are going to let you work through yours on your own.'"

Tom Dresslar, a spokesman for California Treasurer Bill Lockyer, said it is too early to assess the effectiveness of the new state-mandated mediation process, given that the law was passed just last year.

Lawrence Larose, head of the muni restructuring group at law firm Winston & Strawn, said Stockton's stance toward bondholders is becoming more common, as local governments act with "increasing aggressiveness." He added that it isn't clear if the tactic will succeed.

Indeed, bankrupt Jefferson County, Ala., has so far been unsuccessful in its fight to take certain expenses out of its sewer bond payments, effectively reducing the revenue bondholders receive. Jefferson County, which is home to Alabama's most populous city, filed for Chapter 9 bankruptcy protection in November 2011.

"These are tactics that we haven't seen in the past," said Mr. Larose, who represents one of the bond insurers in Stockton's bankruptcy case. "Whether the municipalities will benefit from these strategic defaults in the long run remains to be seen."
—Katy Stech contributed to this article.

Who is [legally, assuming laws are followed - which may or may not be the case] a more senior creditor:

1. Bond holder
2. Pensioner

Quote:

However, 12, or nearly a quarter, of those filings have come since the economy soured in 2008.

12.

Not hundreds and hundreds.

12.

Meredith got her math wrong~

http://www.examiner.com/article/meredith....

i bet hundreds and hundreds of muni's are technically bankrupt if you were to take a hard look a their real balance sheets

Strange that you continue to argue the math of this.

Meredith got her timing wrong.

Generally speaking, legacy costs simply were NEVER budgeted for. It is clear as day, notice countless munis shedding services [bc they are stuck with unbudgeted for, and politically difficult to dump, legacy costs] in an ever difficult attempt to balance the budget.

Most municipals are technically insolvent if you bring on balance its unfunded liabilities.

We are in a forward looking 2% growth rate, stagnant wages and decreasing employment - with billion dollar [@8%] unfunded liabilities. I am not sure how you can argue the math here.

Now if you want to say there will be some kind of unicorn-intervention that is one thing, but without MASSIVE haircuts to the unfunded liabilities [e.g. pensioners] there are going to be a lot of Chapter 9s in the near future.

**** the whole damn state is bankrupt

Hey Christian, I think she is married to a WWF guy!

There's no question that there are, to put it nicely, imbalances in municipal finances.

That said, timing and magnitude matter a whole lot when it comes to making money in capital markets.

Whitney got it wrong on both of those factors. As I've said (lots of times) before, there's no question there will be defaults.

Why is it that (especially here) that y'all are looking for predictive icons, media *****s, to idolatize? It is what it is.

I'm not into the cockfighting mentality of capital markets ... I'd rather pick decent investments than place my odds on prognosticators.


N/just saying

Stockton should build a bullet train. That would fix their ills.