SAN FRANCISCO — National Public Finance Guarantee Corp. withdrew a motion Monday asking a federal bankruptcy court to allow California state payments to the bankrupt city of Vallejo to flow to bondholders instead.

The insurer pulled its challenge after bankruptcy court Judge Michael McManus issued a tentative ruling Friday denying the motion, which had urged that funds from a state vehicle-licensing fee program be diverted from the city to owners of its certificates of participation, on procedural grounds.

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