Stockton's Bankruptcy Plan Set for March Trial

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LOS ANGELES — After declaring Chapter 9 bankruptcy a little more than a year ago, an end is in sight for the Central Valley city of Stockton, Calif.

During a hearing on Monday, U.S. Bankruptcy Judge Christopher Klein set March 5, 2014 as the start date for a trial confirmation and hearing of the city's bankruptcy plan, which it proposed in September.

The trial will follow a vote by the city's creditors on the exit plan on February 10, 2014.

If any creditor objects, Stockton must show that its plan meets a "fair and equitable" standard and treats all similar classes of claims alike, with no class receiving property or remuneration before another creditor senior to it does.

The city has reached agreements with nearly all of its major creditors, including bond insurers Assured Guaranty and National Public Finance Guarantee. It has not reached an agreement with Franklin Advisers, Inc., Franklin High Yield Tax-Free Income and Franklin California High Yield Municipal Fund, which together own around $35 million of the city's lease revenue bonds.

On its largest debt - more than $120 million of unsecured pension obligation bonds insured by Assured Guaranty - the city reached an agreement to repay the obligation over a longer period of time with what Assured has said is a possibility of eventual full recovery.

Stockton also plans to use additional revenue from the increased sales tax, approved in a vote earlier this month, to restore the city's finances. The sales tax will increase by three-quarters of a cent starting January 1 — halfway through the city's fiscal year.

Stockton, a city of about 300,000, declared bankruptcy in June 2012, after struggling to recover from the housing downturn and years of fiscal emergencies.

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