Creditor Says Deis Acted in Bad FaithDecember 19, 2012 – In The News
A creditor seeking to block Stockton’s bankruptcy in its most recent arguments takes a shot at City Manager Bob Deis and his executive team, accusing them of putting their personal interests first.
National Public Finance and Assured Guaranty Corp. both met Friday’s deadline challenging Stockton’s bankruptcy. Wells Fargo Bank and Franklin High Yield Tax-Free Income Fund joined their arguments.
Collectively, creditors have issued $700 million worth bonds to Stockton.
The city filed Chapter 9 on June 28, but U.S. Bankruptcy Judge Christopher Klein has yet to approve it, which would give the city a green light to write its exit plan, asking credits to take a loss on their investments.
Deis argued that because the city mistakenly signed up for officials for CalPERS benefits, and they withdrew their membership this year upon learning of the error.
Deis in his Nov. 28 deposition said that he opted not to reject is CalPERS contract because that would ultimately hurt the city’s employees and retirees, who had already given up enough. Upsetting their pensions would make it hard for Stockton to maintain and recruit employees, Deis said.
National Public Finance makes a compelling argument, said Philadelphia bankruptcy attorney Michael Viscount of the Fox Rothschild law firm, who commented on the case as an outsider.
Viscount said he would use that conflict argument if he were on the front line of Stockton’s Chapter 9 case representing a creditor.
He said that San Bernardino in its bankruptcy is withholding CalPERS payments, and the pension fund lashed out, called the chapter 9 filing a “sham” for not treating its capital market creditors the same way.
Viscount sees all creditors in both Stockton and San Bernardino’s cases positioning themselves at this early stage in each bankruptcy, which won’t likely end happily for anybody.
“They’re going to fight back until there’s a deal that nobody likes,” he said. “Nobody should ever walk away and feel that it was a good deal for them.”