Stockton, the bankrupt California city, will give an office building it had planned to use as a new city hall to Assured Guaranty Corp. as part of a deal to end their fight over how to restructure $164.7 million in bonds the company had insured.
Assured already has control of the building and would gain ownership as well under a proposed agreement, Connie Cochran, a spokeswoman for the city, said in a phone interview. The deal was being presented to the city council tonight at a special meeting on Stockton’s bankruptcy-exit plan.
For the settlement to become final, city voters must approve a sales-tax increase next month and a federal judge must approve the exit plan, Assured said in a statement.
“The settlement includes a unique and innovative instrument that enables Assured to participate in the city’s future revenue growth,” the company said today in an e-mailed statement.
The settlement would be part of the city’s bankruptcy-exit plan, known as a plan of adjustment.
Under that proposal, bondholder Franklin Resources Inc. (BEN) would have the option of settling with the city or taking control of a park and two golf courses that were pledged as collateral for $35.1 million the company is owed. The city says it can only pay $500,000 of the $2.9 million it owes every year on the bonds.
In addition to cutting some debt, the plan of adjustment relies on voters approving the sales tax, which would raise about $28 million a year. If voters reject the increase, the city would have to cut $11 million from services, according to the staff report. Before the bankruptcy, Stockton reduced services and its employee rolls, including police officers.
Stockton, an agricultural center of 296,000 about 80 miles (130 kilometers) east of San Francisco, is among at least three municipalities that have said they will ask creditors including bondholders to take less than the principal they are owed. The others are Detroit and Jefferson County, Alabama.
Under the deal, the city will pay $250,000 a year starting in 2023 on $124.3 million in pension obligation bonds insured by Assured. Starting in 2042, the payments will increase to $350,000 until 2052 when the payments end, according to a city slide presentation provided by Cochran.
The Assured settlement is worth 51 percent of the net present value of non-contingent payments related to the bonds, according the slide.
As of June 30, Assured had $155 million in insured bonds outstanding, including $121 million in pension obligation bonds, according to Robert Tucker, managing director of investor relations for Assured.
To contact the reporter on this story: Steven Church in Wilmington, Delaware at email@example.com