Stockton exit imposed losses on bondholders

The date of February 25, 2015 witnessed a new chapter in the life of the Stockton community. It was this day when the bankruptcy exit plan became effective. There were approximately $2 billion debts, long term debts and other monetary turbulence. The only solution which the inhabitants trusted on was filing of Chapter 9 under the bankruptcy law. There were other steps taken by the community along the line. So, there was fabrication of new labor agreements, novel settlement with retirees and making it work with the largest creditors.

However, the impact of the same on the bondholders seems devastating. There has been a weakening of the claims of the bondholders. So, in here the pensioners will be in the position to bask in a better financial sustainability as compared to the bond holders. This definitely came as a surprise to the general public as well as the bondholders. It is because, in accordance with the legal proceedings in the initial state, it is the pension which can be impaired in the bankruptcy cases. So basically the investors are forced to take less than they owed. This implies that Calpers does have to deal with the consequences associated with it.

In fact, the situation should have been different. In accordance with the federal law the priority in case of filing of Chapter 9 bankruptcy should have landed towards secured creditors in a hassle free manner. Hence, it will be interesting to witness with regards to the future of similar chapter 9 filing of bankruptcies.