Stockton, Calif., Chapter 9 eligibility ruling changes denied by court

By Caroline Salls

Pittsburgh, June 13 - Stockton, Calif., capital markets creditors' Assured Guaranty Corp. and Assured Guaranty Municipal Corp.'s motion to amend a court order deeming the city eligible for Chapter 9 bankruptcy was denied Wednesday by the U.S. Bankruptcy Court for the Eastern District of California.

Specifically, the entities said the motion filed in April that the court claimed they "acted as a stone wall" during negotiations with the city and did not negotiate in good faith under section 53760.3" of the California Government Code.

"The court's findings as to the lack of good faith by Assured are not supported by the evidentiary record and directly contradicted by uncontroverted evidence," the entities said in their motion.

"The city at several points acknowledged and submitted its own evidence of the capital markets creditors' good faith in negotiations."

In addition, the Assured entities said they participated in good faith settlement discussions with the city.

Judge Christopher M. Klein said in Wednesday's rulings that "the objectors inappropriately used an issue relating to plan confirmation, but that is irrelevant to eligibility, as a pretext to decline to negotiate in good faith and to force a trial that should not have been necessary."

"The court was required at trial to weigh competing evidence, to make credibility determinations and to draw reasonable inferences," Klein said in the opinion.

"After reflecting on the findings in light of the points raised by Assured Guaranty, it remains confident that all of the questioned findings are correct."

As previously reported, the court made an oral ruling on April 1 that Stockton is eligible for Chapter 9 bankruptcy. Wednesday's order confirmed that ruling.

Stockton filed for bankruptcy on June 28, 2012 under Chapter 9 case number 12-32118.

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