Bond Insurer: Stockton bankruptcy plan unfair, favors Calpers

Reuters reports:

Bond insurer Assured Guaranty, facing massive losses in Stockton, California's bankruptcy, on Wednesday said the largest U.S. public pension fund, Calpers, was getting preferential treatment among creditors.

That may set the stage for a fight over whether cities in dire circumstances legally have the ability to change obligations under pension plan benefits agreed to in much better times. Calpers, the California Public Employees' Retirement System, so far has said that the cities don't have that ability.

A Stockton proposal to creditors in May, which was made before Chapter 9 proceedings began, showed the city on the far outskirts of the San Francisco Bay Area was ready to fully pay pension fund payments but largely abandon payments on $121 million of pension obligation bonds backed by Assured Guaranty.

Assured calculated that the loss on bond principal would be 83 percent. That amounts to $100 million, which Assured would have to cover.

Just a reminder to bondholders of municipal debt.