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California Blueprint for Delaying Muni Bankruptcy Working?

A California community that once seemed destined to head into municipal bankruptcy will continue working with its creditors in a process designed to force stakeholders to the negotiating table. If the process proves helpful, it could give other states with communities facing insolvency some ideas on how to slow a potential rash of filings.

Stockton officials agreed with all significant parties involved to extend a mediation process designed to delay, if not keep them out of a municipal bankruptcy filing. The extension of mediation refers to the mandatory 60-day process outlined by a 2011 California law that aimed to keep struggling municipalities from hastily entering into a Chapter 9. Mayor Ann Johnston believes the development marks “a good sign.”

“It means that our creditors understand our fiscal circumstances, and it indicates that they believe that it is worth the investment of time and resources to work toward a solution,” the mayor said. “We are doing everything in our power to avoid bankruptcy. Mediation is our last and best chance.”

Stockton officials have become the first city in California to begin going through the newly mandated mediation process. Former U.S. Bankruptcy Court Judge Ralph Mabey began in the role of mediator in Stockton’s debt negotiations in March. If eventually filed, Stockton would unseat Jefferson County, AL as the largest municipal bankruptcy filing in U.S. history.

-Brian Shappell, CBA, NACM staff writer