PHOENIX - Franklin Templeton, the holdout creditor in the Stockton, Calif. bankruptcy, says it will not pursue further appeals of the plan that allowed the city to officially exit bankruptcy earlier this year.
The Bankruptcy Appellate Panel of the U.S. Ninth Circuit Court of Appeals dismissed fund manager Franklin's appeal of the city's plan last week. The three judges of the panel, who heard arguments from Stockton and Templeton in Sacramento in November, ruled in the city's favor when it found that Franklin's appeal was "equitably moot" because it had essentially already been consummated.
An attorney for the city was guarded immediately after the decision, warning that the process could continue to drag on for up to two more years if Franklin decided to appeal the plan to a regular panel of the Ninth Circuit. But Franklin told The Bond Buyer on Wednesday that it has decided not to move forward with further legal attempts to overturn the plan.
"We are of course disappointed by Bankruptcy Appellate Panel's ruling on Dec. 12 and have decided against pursuing another appeal," said Franklin spokesperson Stacey Coleman. "This case was widely followed by municipal investors, and we feel this ruling may unfortunately cause investors to have serious reservations about investing in California local government general fund obligations. The ultimate effect will likely be an increased cost of borrowing for infrastructure and other projects for our local communities."
The company said in its court filings that the bankruptcy court that confirmed Stockton's plan erred in approving a plan that was "discriminatory and punitive" to Franklin, paying it roughly 1% on $35 million of bonds while leaving pensions untouched and paying other creditors who had settled with the city earlier between 52% and 100%. Stockton's attorneys said in their own filing that Franklin's total recovery rate on secured and unsecured claims is roughly 17.5%. The city countered that any further relief awarded to Franklin would fall squarely on the city's residents in the form of "reduced services, infrastructure investment, and essential reserves."
Franklin still maintains the ability to change its mind. The company has until Jan. 11 to file its notice of appeal. As of last year, the city said it had already spent some $13 million in legal fees related to the bankruptcy.
