Bankrupt Stockton says final creditor won't budge

Published on NewsOK Modified: May 12, 2014 at 7:14 pm •  Published: May 12, 2014
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SACRAMENTO, Calif. (AP) — An attorney for the largest city in California to seek bankruptcy protection told a judge Monday that he has tried to reach a deal with Stockton's last major creditor, but the company is not budging.

Marc Levinson, an attorney for the city, made the comments during his opening statement in a trial over Stockton's plan to emerge from bankruptcy. The city is asking a judge to approve the plan for reorganizing more than $900 million in long-term debt, while Franklin Templeton Investments wants U.S. Bankruptcy Judge Christopher Klein to reject it.

The city has reached deals with all of its major creditors, except for Franklin, which took Stockton to trial.

The investment firm's attorney, James Johnston, says it is being offered 1 cent on the dollar for a $35 million loan given to Stockton in 2009 to build firehouses, parks and to move its police dispatch center, amounting to $350,000.

Johnston told the judge that Stockton struck much more favorable deals with other creditors. The attorney said the city is making a meager comeback, allowing it to pay its debts to the firm.

"The city is recovering," Johnston said. "It is not a strong recovery, but it is undeniably recovering."

Levinson said Franklin is a billion-dollar investment firm and its potential loss in Stockton amounts to a "rounding error."

"For the city, this week is a fight for its life," he said.

Stockton, an inland port city 80 miles east of San Francisco, filed for Chapter 9 protection in 2012, making it the nation's largest bankrupt city before Detroit filed last year. Vallejo went through bankruptcy before Stockton. San Bernardino filed shortly after Stockton, but it has yet to present an exit plan.