Stockton Retiree Group Accepts $5 Million Settlement

Stockton, California, the biggest U.S. city to file for bankruptcy, will pay retirees as much as $5.1 million to compensate them for having their health benefits cut when the city sought court protection last year.

Under an agreement between a committee of retirees and the city, the payment will resolve all claims related to the group’s lost medical benefits. The money will be split among retirees after Stockton wins court approval of a plan to adjust its debt.

“The liability for retiree medical benefits is estimated by the parties to be in the hundreds of millions for the 1,100 retirees with bankruptcy claims,” the city said in a statement. Stockton has been negotiating with creditors, including the retirees, on how to handle claims filed in the bankruptcy.

The city of 296,000, an agricultural center about 80 miles (130 kilometers) east of San Francisco, is among three bankrupt municipalities that have said they will try to force creditors, including bondholders, to take less than the principal they are owed. The others are San Bernardino, California, and Jefferson County, Alabama.

Stockton rode a surge in new-home construction in the 2000s before the housing crash set off a wave of foreclosures that sapped tax-revenue gains.

Last year, the judge overseeing the city’s bankruptcy, Christopher Klein in Sacramento, California, rejected a request by retirees to prevent Stockton from cutting their medical benefits while the city was under court protection.

The case is In re Stockton, 12-bk-32118, U.S. Bankruptcy Court, Eastern District of California (Sacramento).

Before it's here, it's on the Bloomberg Terminal.