LOS ANGELES — Franklin Templeton Investments filed its first
The move by Stockton's most contentious creditor comes as no surprise.
Franklin filed an appeal, also requesting a stay on the city's ability to exit bankruptcy on November 11, shortly after U.S. Bankruptcy Judge Christopher Klein approved Stockton's plan of adjustment on Oct. 30.
Last month, Klein ruled against the stay, saying that the city could move ahead and exit bankruptcy deeming Franklin's likelihood of winning on appeal slim.
The newest, 99-page brief argues that Klein erred in allowing the city to exit bankruptcy as the city's Chapter 9 plan was "discriminatory and punitive" toward Franklin.
Stockton City Manager Kurt Wilson said in an emailed statement that the city is studying Franklin's "lengthy brief," which arrived only Monday afternoon. The city's responsive brief is due on May 28, 2015.
"We continue to believe that Judge Klein's ruling confirming the plan was correct on both the facts and the law, and we are confident that the appellate court will agree," Wilson said.
The city's other capital markets creditors aren't affected by the appeal as they voted for confirmation of the city's plan of adjustment, which became effective on February 25.
U.S. Bankruptcy Judge Christopher Klein approved the city's plan of adjustment to exit bankruptcy on Oct. 30.
Franklin has objected to taking a significant loss on the $35 million of bonds it holds — a recovery rate it estimated amounts to about 1% — when the California Public Employees' Retirement System remained untouched. Other major creditors settled with the city ahead of the bankruptcy confirmation.
Franklin's recovery rate on its unsecured bonds was less than 1%, but Stockton's attorneys said in a filing that Franklin's total recovery rate on secured and unsecured claims is roughly 17.5%. Franklin will receive $2.1 million in collateral from the bond reserve account that is not accounted for in the judge's opinion, $4.05 million from the sale of a golf course, plus the $285,227 on its unsecured claim for a total of $6.4 million — equal to a 17.5% total recovery on the $36.6 million claim, according to the city's filing.
Klein lifted the stay preventing the city from exiting bankruptcy on Jan. 20, saying during a hearing that Franklin was not likely to win the appeal.
The city, which declared bankruptcy in July 2012, has developed a long-range financial plan for the duration of the agreements in the plan of adjustment, some of which extend out to 2053, according to the city.
