http://www.zerohedge.com/news/2013-04-01/stockton-becomes-biggest-us-city-declare-bankruptcy-its-official
Submitted by Tyler Durden on 04/01/2013 15:24 -0400
http://ex-skf.blogspot.com/2013/04/city-of-stockton-ca-is-declared.html
Who are the creditors? Wells Fargo Bank, Franklin California High Yield Municipal Fund, Franklin High Yield Tax-Free Income Fund.
Wells Fargo has been seizing Stockton's public properties for lack of payment to the bondholders. It has already taken the new City Hall and three parking garages.
As often is the case for troubled US municipalities, Stockton has lost big in the interest rate swaps with Wall Street banks. Here's the city's document on bond deals and multiple interest rate swaps with Wells Fargo and Merrill Lynch over the municipal wastewater treatment system, entered on June 5, 2007.
That was about the height of the real estate bubble. Slightly over one year later, the entire financial system was on the verge of collapse, and Ben "Blackhawk" Bernank cut the rate to near zero. Stockton, as with many other cities across the US, have been stuck with paying interest to the banks at a high, fixed rate while receiving peanuts from the banks at a variable rate which remains near zero.
From Reuters (4/1/2013):
and.....
Were California's state government a business, it would be a candidate for insolvency with a negative net worth of $127.2 billion, according to an annual financial report issued by State AuditorElaine Howle and the Bureau of State Audits.
Stockton Becomes Biggest US City To Declare Bankruptcy (It's Official)
A mere nine months after we first discussedthe inevitability of Stockton, CA.'s bankruptcy, a judge has ordered today that the city will now become the most populous in the US to be declared bankrupt.
- *STOCKTON CREDITORS DIDN'T NEGOTIATE IN GOOD FAITH, JUDGE SAYS
Creditors are pushing to get the city out of bankruptcy but the judge states that "by any measure" the city was insolvent. So, in summary, yeah, it was broke years ago, it still is broke - despite the best efforts by the Central Planning Reserve to reflate the same housing bubble that was the primary reason for the city's insolvency in the first place. Only this time, it's official!
Via Reuters:
Stockton, California, was ruled eligible for bankruptcy protection under Chapter 9 of the U.S. bankruptcy code, a U.S. judged said on Monday, turning aside creditors' arguments that the city was not truly insolvent when it sought protection last year and had improperly failed to seek concessions.In a case that has been widely watched by the $3.7 trillion municipal bond market, U.S. Bankruptcy Judge Christopher Klein said Stockton had established during last week's three-day trial that it had met requirements to be found eligible to proceed with its municipal bankruptcy case.Officials in the city of nearly 300,000, the largest city so far to have filed for municipal bankruptcy, will now be allowed to start drafting a so-called plan of adjustment for the city's debts.The case is expected to pit municipal bondholders against the California Public Employee Retirement System, which manages pensions for Stockton and many other California governments.
And...........
MONDAY, APRIL 1, 2013
City of Stockton, CA Is Declared Bankrupt by Federal Judge, Despite Protest from Creditors
Who are the creditors? Wells Fargo Bank, Franklin California High Yield Municipal Fund, Franklin High Yield Tax-Free Income Fund.
Wells Fargo has been seizing Stockton's public properties for lack of payment to the bondholders. It has already taken the new City Hall and three parking garages.
As often is the case for troubled US municipalities, Stockton has lost big in the interest rate swaps with Wall Street banks. Here's the city's document on bond deals and multiple interest rate swaps with Wells Fargo and Merrill Lynch over the municipal wastewater treatment system, entered on June 5, 2007.
That was about the height of the real estate bubble. Slightly over one year later, the entire financial system was on the verge of collapse, and Ben "Blackhawk" Bernank cut the rate to near zero. Stockton, as with many other cities across the US, have been stuck with paying interest to the banks at a high, fixed rate while receiving peanuts from the banks at a variable rate which remains near zero.
From Reuters (4/1/2013):
Stockton eligible for bankruptcy protection: judge
(Reuters) - The city of Stockton, California, is eligible for bankruptcy protection, a federal judge ruled on Monday, turning aside creditors' arguments that the city was not truly insolvent when it sought protection and had improperly failed to seek concessions.
U.S. Bankruptcy Court Judge Christopher Klein's ruling permits Stockton to proceed with its Chapter 9 bankruptcy protection filing from last June in a case with precedent-setting potential for other cash-strapped U.S. cities.
In a lengthy preamble to his ruling, Klein said Stockton's bondholders had failed to negotiate in good faith with the city prior to its filing for protection. He added the city was "by any measure insolvent" prior to its filing.
Stockton is the largest U.S. city to have ever filed for bankruptcy. Its case is being closely watched in the $3.7 trillion municipal bond market as it is likely to have key implications for other struggling municipal and county governments, their employees and their bondholders.
The city's capital market creditors had argued the city could have done more to cut costs and raise revenues.
Since at least the 1930s, bondholders in most major municipal bankruptcies consistently have been repaid their entire principal. But Stockton is expected - along with Jefferson County in Alabama and San Bernardino in California - to break with that tradition.
Bond insurers Assured Guaranty Corp, Assured Guaranty Municipal Corp and National Public Finance Guarantee Corp were joined by Wells Fargo Bank, the Franklin California High Yield Municipal Fund and Franklin High Yield Tax-Free Income Fund in contesting Stockton's bid for bankruptcy eligibility.
and.....
Were California's state government a business, it would be a candidate for insolvency with a negative net worth of $127.2 billion, according to an annual financial report issued by State AuditorElaine Howle and the Bureau of State Audits.
The report, which covers the fiscal year ending June 30, 2012, says that the state's negative status -- all of its assets minus all of its liabilities -- increased that year, largely because it spent more than it received in revenue.
During the 2011-12 fiscal year, the state's general fund spent $1.7 billion more than it received in revenues and wound up with an accumulated deficit of just under $23 billion from several years of red ink. Gov.Jerry Brown has referred to that and other budget gaps, mostly money owed to schools, as a "wall of debt" totaling more than $30 billion.
Last November, voters passed an increase in sales and income taxes that Brown says will balance the state's operating budget and allow the debt wall to be gradually dismantled.
About half of the $127.2 billion in accumulated red ink came from the state's issuing general obligation bonds and then giving the money to local governments and school districts for public works projects, the auditor pointed out. The assets built with the bonds remain on local balance sheets while the bonded debt accrues to the state.
The remainder, however, is all on the state's ticket. "Expenses that exceeded revenues and increased long-term obligations resulted in an 81.4 percent decrease in the total net assets for governmental and business-type activities from the 20-10-11 fiscal year," said the report.
The report listed the state's long-term obligations at $167.9 billion, nearly half of which ($79.9 billion) were in general obligation bonds, with another $30.8 billion in revenue bonds, many of which were issued to build state prisons, whose "revenue" is lease payments from the state general fund.
The list of long-term obligations did not include the much-disputed unfunded liabilities for state employees' future pensions, nor the $60-plus billion in unfunded liabilities for retiree health care. TheGovernmental Accounting Standards Board and Moody's, a major bond credit rating house, have been pushing states and localities to include unfunded retiree obligations in their balance sheets and were they to be added to California's, it could push its negative net worth down by several hundred billion dollars.
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