LOS ANGELES — Stockton, Calif.'s official Chapter 9 bankruptcy exit Wednesday comes months after a bankruptcy judge approved the city's plan of adjustment.
The news may seem anticlimactic to some, but not for city leaders.
"There is a cause for celebration," Stockton City Manager Kurt Wilson said in a prepared statement. "The stigma of bankruptcy is lifted and we can move our city forward toward recovery."
U.S. Bankruptcy Judge Christopher Klein approved the city's plan of adjustment to exit bankruptcy on Oct. 30.
The delay came after Franklin Advisors, the lone opponent to the plan, filed an appeal on November 11 and requested a stay on the bankruptcy exit from Klein until the appeal could be heard.
Franklin had 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 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 case still faces the pending appeal before a three-judge U.S. Bankruptcy Appellate Panel of the Ninth Circuit.
Klein released a written opinion further confirming his October ruling on Feb. 4.
"We have spent the last several weeks finalizing dozens of complicated legal and real estate documents and making preparations for thousands of checks that must be issued for the effective date," Wilson said.
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.
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Corrected February 25, 2015 at 12:50PM: This story has been updated to more accurately reflect Franklin Advisory's total recovery amount.