CHICAGO — A California state court judge on Thursday appointed a receiver to manage the transfer of three parking garages in Stockton from city control to Wells Fargo NA, the trustee on $30 million of defaulted bonds.
Representatives of the fiscally troubled city and Wells Fargo appeared before San Joaquin Superior Court Judge Roger Ross Thursday to discuss a plan for the transfer of operations of the garages that were pledged as assets backing the bonds.
The judge earlier this month awarded the garages to Wells Fargo after the city failed to make its $779,000 debt service payment due March 1, as officials sought to preserve cash needed to keep operating through the year. As a result of the ruling, the garage revenues will now be used to pay past due rents owed to bondholders.
The court-appointed receiver would work with the city and trustee to determine the future operations of the garages including management and staffing. The garages will remain open during the transition and adhere to the existing fee schedule.
“The objective is to make this transition as seamless as possible, without disruption to the public and those who rely on these garages,” said Mike Locke, deputy city manager. The city considers the garages a critical resource for downtown businesses and entertainment venues.
The garage bond default resulted from the City Council’s vote last month to suspended payments on three series of bonds, including the garage bonds, totaling $110 million in par value through the end of its fiscal year June 30. The council also voted on Feb. 28 to begin a confidential mediation process with creditors under terms of a new state law designed to give financially stressed local governments a chance at staying out of bankruptcy.
As trustee, Wells Fargo filed the complaint in court at the behest of National Public Finance Guarantee Corp., the insurer of the bonds issued through the Stockton Public Financing Authority in 2004 to fund construction of parking garages and other capital improvements. The bond indenture said the lease payments made by Stockton support the debt and the property is security.
“We are pleased that the court has granted our request for a receiver,” Wells Fargo said in a statement.
Stockton’s financial problems led to “super-downgrades” and the loss of its investment-grade ratings. Moody’s Investors Service has droppded the city to Ba2 from Baa1 since its announcement on measures aimed at avoiding a bankruptcy filing. Standard & Poor’s has dropped the city to “selective default” after successive downgrades from A-minus.