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Judge OKs Largest U.S. City Bankruptcy Yet

Bondholders say that it could damage the municipal bond market


Bankruptcy next exit sign 630California’s thirteenth  most populous city has filed for bankruptcy.

U.S. Bankruptcy Court Judge Christopher Klein granted the city of Stockton’s bankruptcy petition on Monday. Holders of the city’s bonds had contested the filing, arguing that it Stockton can evade its bond obligations through bankruptcy, other struggling municipalities would follow suit, potentially disrupting the $3.7 trillion municipal bond market, Reuters noted.

Dionne Warwick Bankrupt, $10.7M in Debt
Dionne Warwick Bankrupt, $10.7M in Debt

With a population of about 300,000, Stockton is the biggest American city to ever file for bankruptcy. However, other financially beleaguered cities, like Detroit, Mich., are watching the proceedings closely.

The judge ruled that bondholders had not negotiated with Stockton in good faith.

In approving the bankruptcy petition, the judge noted that Stockton’s arrangement with the California Public Employees Retirement System (CALPERS) could also come under the court’s scrutiny. Pension payments to retired Stockton workers have been spared from cost cutting so far.

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