Stockton city, California, the biggest city bankruptcy case in the US this year, is finally walking towards a plan to successfully negotiate a settlement with its creditors while keeping everyone out of court. This case was important because it threatened to bring up the question of whether creditor’s payments took priority over retirement funds or not; with a bigger question of whether State law presided over federal law or not, looming round the corner.
A mediated peaceful settlement decreases chances of such questions being actually answered. Litigation World was following the story closely as this one had the potential to set serious legal rulings on preferences of State law or Federal law when they were pinned against each other. But these positive negotiations probably take this city of 3 million in the mid-valley of California, out of lime-light of litigation world as well.
As creditors were threatening to drag the city’s state pension fund into the equation, pacifying this situation brings a sigh of relief to everyone. Creditors were making the news by saying that when the city was flushed, retirement funds were well- funded, and then retired citizens enjoyed prosperity, now they should share the burden with the rest of us.
U.S municipal bond market followed the story closely for the entire year as the city considered convincing bondholders to bear the losses and leaving pensions un-tempered. The first local government to suggest losses for bond holders was Jefferson County in Alabama; the step was taken for the first time since the great depression.
With an enormous municipal debt market of $3.7 million, Stockton’s decision to follow up on retirement payments has raised concerns about pension costs and their reasonable right to it. Bond insurers in the city are getting exhausted as the cases drag on costing their already fragile financial states, more discomfort in attorney costs.
Many cities are undergoing bankruptcy law suits with Stockton being the biggest case in point. Combine that with their bankruptcy raising significant social responsibility questions; this reconciliation fast tracks as well as safe tracks a serious case US states witnessed in a post-recession State government history of the United States.
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