Stockton, California, to File for Bankruptcy
Stockton, California, is expected to file for bankruptcy before the end of the week, becoming the largest U.S. city to seek protection from its creditors.
Officials said that the city of nearly 300,000 could file for Chapter 9 bankruptcy by Friday afternoon, after the city council approved on Tuesday a budget that includes savings from the bankruptcy.
The $26 million budget gap that was expected for fiscal 2013 is filled half by savings from missed payments on the debt service and half by lower payments to employees, Standard & Poor’s analyst Chris Morgan told Reuters.
The decision to file for bankruptcy triggered on Wednesday ratings cuts into default by Moody’s Investors Service and Standard & Poor’s Ratings Services.
“The Caa3 rating level assumes losses to bondholders will be greater than 20 percent. The negative outlook reflects the high likelihood that losses could exceed our estimates,” Moody’s said in its statement.
The $3.7 trillion U.S. municipal bond market has so far taken in stride Stockton’s march toward bankruptcy despite the city’s more than $700 million in bond debt.
Bondholders and bond insurers are among Stockton’s 18 creditors. Other creditors are the 1,400 employees of the city including police officers, firefighters, non-public safety employees and their supervisors and retired city employees.