Wednesday, December 4, 2013

Detroit bankruptcy process moving much faster than Stockton

Municipal bankruptcies are rare, so I don't know how long the process takes.  Former City Manager Bob Deis said Stockton's bankruptcy was progressing at "warp speed," but it looks like a turtle compared to Detroit... so far. 

Stockton filed for bankruptcy in late June 2012 and its eligibility trial was 9 months later in late March 2013.  It was found eligible shortly after the trial in April 2013. 

Detroit filed for bankruptcy in mid-July 2013 and its eligibility trial was in early November, about 3.5 months later.  The eligibility ruling was issued yesterday, about 4.5 months after the filing and the ruling covered more ground than Stockton's case, specifically on the issues of pension protection.

Thus far, Detroit has been moving twice as fast.

Furthermore, Detroit plans to file its plan of adjustment within 2 months of the eligibility ruling, while that process took Stockton over 5 months.  Stockton negotiated deals with most of its creditors during that time, and Detroit's case appears headed for appeals.  So appeals could slow down Detroit, but the Detroit ruling could also slow down Stockton's process.

Articles in today's NY Times and Sac Bee suggest that the one creditor who has yet to settle with Stockton, Franklin Templeton, may be newly emboldened by the Detroit ruling to fight the plan of adjustment rather than reach a settlement of their own.

(from NY Times) Even before Tuesday, Franklin was warning that it would challenge to Stockton’s plan. Documents on file with the court suggest it was planning to argue that no plan could be “fair and equitable” if Calpers were paid in full while Franklin received less than a cent on the dollar.
“Their argument just got strengthened,” said Karol K. Denniston, a bankruptcy lawyer at Schiff Hardin in San Francisco who has been advising a taxpayers group that formed after Stockton declared bankruptcy. Referring to the judge’s decision in Detroit, she said, “Franklin Templeton is going to have a lot to say about this ruling.”

(from Sac Bee)  Denniston said the Detroit ruling could also affect the Stockton bankruptcy. Even though Stockton left its CalPERS payments untouched and made debt-restructuring deals with most of its other creditors in October, the city still hasn’t reached agreement with one major lender, Franklin Templeton. The Detroit decision could give the Franklin firm an opening to demand that Stockton officials treat CalPERS like every other creditor, according to Denniston. (from Sac Bee)

Read more here:

Both cities are still in bankruptcy, so it is still to early to know who will emerge the fastest. But Detroit certainly has come out of the gates faster.

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