Assured Guaranty Faces $100 Million Loss from Stockton
By Steven Church – Aug 1, 2012 10:29 AM ET.
Stockton, the bankrupt California city, is trying to force bond insurer Assured Guaranty Corp. to accept $100 million in losses instead of seeking more concessions from labor unions, the company said today.
The city filed a Chapter 9 bankruptcy on June 28 after months of talks failed with creditors, including Assured and labor officials. In a statement today, Assured said that its claims should be treated the same as those of other creditors, including any filed by employees.
“Chapter 9 was not intended to be used as a sword to prefer one class of similarly situated creditor over another,” according to the statement.
Before it filed bankruptcy, Stockton said it negotiated with creditors on an out-of-court restructuring of its debts. Last month the city released details of the cuts it sought during those talks. The federal judge in Sacramento who is overseeing the bankruptcy barred the city from releasing any counteroffers it received from creditors.
Stockton is trying to become the first American city since the Great Depression to use bankruptcy to successfully force bondholders to take less than the principal they’re owed.
Stockton used Assured Guaranty to insure $125 million in pension obligation bonds the city issued 2007. The city now says it plans to cut payments on the remaining principal by about 83 percent. That would leave Assured with about $100 million in losses related to the debt, the company said.
In its bankruptcy petition, the city listed assets of more than $1 billion and debt of more than $500 million. The filing was followed by Mammoth Lakes, California. San Bernardino, which faces similar budget woes, last month voted to file bankruptcy.
The city will need approval from the judge to impose any cuts on creditors.
The case is In re Stockton, 12-32118, U.S. Bankruptcy Court, Eastern District of California (Sacramento).
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