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Stockton's
holdout creditor, two funds managed by Franklin Templeton, filed
the appeal earlier this year after the city had received the
green light to exit Chapter 9.
But an appellate panel of the U.S. Ninth Circuit Bankruptcy
Court dismissed the case as equitably moot, saying that the
bankruptcy court had not clearly erred in its decision.
Franklin had argued that "no bondholder has ever received so
little in the history of municipal bankruptcy."
Franklin California High Yield Municipal Fund and Franklin High
Yield Tax-Free Income Fund loaned $35 million to Stockton in
2009. After the bankruptcy, Franklin ended up with over $6
million.
The city contended that it was not "awash in loose cash" and
could not boost Franklin's payments without "eroding the
underpinnings of the plan."
The appellate panel agreed with the city.
In its order, the court wrote that to "reverse the confirmation
order at this point would have a potentially devastating impact
on creditor constituencies."
To exit bankruptcy, Stockton created a plan that lowered
pensions for new employees and eliminated up to $550 million in
unfunded health benefits. These concessions were accepted by
employees in exchange for preserving pensions.
The Northern California city of about 300,000 filed for
bankruptcy in 2012 and got approval to exit Chapter 9 last fall
in a case that was closely watched in the $3.6 trillion U.S.
municipal debt market.
The case is in re City of Stockton, California, U.S. Bankruptcy
Appellate Panel of the 9th Circuit, No. EC-14-1550.
(Reporting by Robin Respaut; Additional reporting by Jim
Christie; Editing by Lisa Shumaker and Tom Brown)
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