SAN FRANCISCO — Stockton, Calif., and its creditors have selected a former bankruptcy judge as mediator to handle restructuring talks meant to help the city avoid bankruptcy.
The city and the 18 participants in the mediation process have agreed on Ralph Mabey, a former U.S. Bankruptcy Court judge and an attorney with the Los Angeles firm Stutman Treister & Glatt, to act as mediator during the talks, according to a statement from Stockton.
City official said last week they will be negotiating with creditors that have interests above $5 million during the mediation. The participants include Wells Fargo Bank NA, the trustee for several outstanding bonds, and the California Public Employees Retirement System, the largest pension fund in the country.
Other stakeholders include city employee unions, Dexia Credit Local, Union Bank and the U.S. Department of Housing and Urban Development, according to a statement by the city.
The selection of a mediator would start a 60-day clock on negotiations that can be extended by up to 90 days by a majority vote of creditors. The City Council voted on Feb. 28 to begin mediation with creditors under terms of a new California law, AB 506.
If the mediation fails, the city can still file for Chapter 9 bankruptcy, or at any time it could declare a fiscal emergency during a public hearing and start the bankruptcy.
Orrick, Sutcliffe & Herrington lawyers have been hired to advise the city during the process.
Stockton, a city of 300,000 residents an hour-and-a-half drive east of San Francisco, is trying to avoid becoming the largest city in the country to file for bankruptcy.
The council also voted on Feb. 28 to suspend payments toward $110 million of general fund-supported bonds through June 30, the end of the fiscal year.
The city’s move toward the edge of bankruptcy last month spurred Moody’s to cut Stockton’s rating to Ba2 from Baa1.
Standard & Poor’s has dropped the city to “selective default” after successive downgrades from A-minus.
The city had more than $702 million of bonds outstanding as of the end of June 2010, including debt issued for restricted enterprise funds such as water, sewer and parking enterprise debt, according to financial statements.
