Standard & Poor's Ratings Services views the April 1, 2013, judgment that Stockton, Calif., is eligible for bankruptcy under Chapter 9 of the U.S. Bankruptcy Code as potentially influencing management decisions among U.S. local governments in distress.

Obligors considering bankruptcy will likely closely examine how U.S. Bankruptcy Court Judge Christopher Klein, as part of his finding, evaluated the city's argument that it negotiated in good faith with its creditors. The city's decision to undertake a "confidential neutral mediation process" with its creditors, rather than declaring a fiscal emergency -- both of which are allowed under California's bankruptcy statutes -- facilitated Judge Klein's quick rendering of a decision.

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