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California Issuers Risk Higher Costs With Stockton: Muni Credit

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Stockton, California, won permission to exit bankruptcy by paying certain investors less than they’re owed. Other localities in the state may see borrowing costs rise as a result.

In the proposal approved by a judge in October, Stockton’s certificates of participation, which are securities backed by leases, stand to deliver varying recovery rates as the city shields pensioners. By deterring investors in this type of debt, the outcome may raise interest rates for some California governments using the financial tool, said Matt Fabian at Municipal Market Advisors and James Iselin at Neuberger Berman.