Stockton Reveals Bondholder Offers From Mediation
By Steven Church - Jul 21, 2012 12:54 PM PT

Stockton, one of a growing number of California cities in financial collapse, said it asked bondholders and other lenders owed more than $300 million to take less than full repayment as part of an unsuccessful bid to avert the biggest ever bankruptcy filing by a U.S. city.

Under a proposal made public yesterday, Stockton told unsecured bondholders owed about $124.3 million they would no longer receive any debt payments from the general fund, the main account used to pay for services like police and fire protection. Secured bondholders, who hold debt guaranteed by assets, were asked to accept smaller interest payments and a longer, 40-year repayment term.
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Stockton said it made a “good faith” effort to negotiate a restructuring plan that would adjust its debt to a level it could afford to pay, City Manager Bob Deis said in the statement. He blamed the bankruptcy on the city’s inability to convince bondholders and retirees to accept the requested cuts.

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 sought court protection on June 28, listing assets of more than $1 billion and debt of more than $500 million. The filing was followed by that of Mammoth Lakes, California, and San Bernardino last week voted to file a bankruptcy petition.