Ralph Mabey, who serves as a court- appointed mediator in the Lehman Brothers Holdings Inc. (LEH) bankruptcy, will guide talks with creditors and Stockton (3654MF), California, the city on the verge of seeking court protection.
Mabey, 67, a lawyer with Stutman, Treister & Glatt, was chosen by Stockton and the participants, according to a statement from the the city yesterday. He is a former U.S. bankruptcy judge who was appointed to help resolve derivatives disputes from Lehman, the biggest case of its kind in U.S. history. Mabey declined to comment on his latest appointment.
The selection starts the clock on 60 days of mediation required under state law before the city can seek court protection. The farming center about 80 miles (130 kilometers) east of San Francisco teeters on the brink of insolvency because of escalating retiree costs, accounting errors and the lingering effects of the recession, City Manager Bob Deis said last month.
“We’re moving forward,” Marc Levinson, an Orrick, Herrington & Sutcliffe LLP lawyer in Sacramento who represents Stockton, said by telephone.
The City Council voted Feb. 28 to default on $2 million in bond payments and pursue negotiations with creditors. Stockton said on March 21 that 18 of those, holding at least $5 million in debt, had agreed to talks.
They include the California Public Employees’ Retirement System, the largest U.S. public pension; Wells Fargo & Co. (WFC), the fourth-largest U.S. bank by assets; Union Bank NA, a unit of San Francisco-based UnionBanCal Corp., part of Mitsubishi UFJ Financial Group Inc. (8306), Japan’s largest publicly traded bank; the National Public Finance Guarantee Corp., a unit of MBIA Inc. that insures municipal bonds against default; and a New York unit of Brussels-based Dexia SA. (DEXB)
The police, fire and city employee unions and the U.S. Housing and Urban Development Department have also said they will take part.
“We’re pleased with the selection of Mabey,” David E. Mastagni, a lawyer for the police union, said by telephone. “We’re hopeful these issues can be resolved without resorting to bankruptcy.”
The mediation is confidential under state law. The talks will take as long as 60 days, with the option to extend the negotiations another 30 days.
Moody’s Investors Service yesterday cut its ratings on Stockton’s pension-obligation and lease-revenue bonds, citing “the growing likelihood of default and the potential for less than 100 percent recovery for bondholders.”
Stockton could become the largest U.S. city to seek court protection. Jefferson County, Alabama, turned in the biggest municipal bankruptcy in U.S. history last November, with $4.2 billion in debt. Vallejo, California, sought Chapter 9 reorganization in 2008.
Among metropolitan areas with more than 200,000 residents, Stockton had the second-highest foreclosure rate in the U.S. last year after Las Vegas, according to Irvine, California-based RealtyTrac Inc. The California city’s unemployment rate was almost 17 percent in January, double the U.S. rate of 8.3 percent that month.
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