Bankruptcy Judge Rejects CaLPERs Seniority In Muni Bond Bankruptcies

U.S. Bankruptcy Judge Christopher Klein has surprised the bond market by ruling that the California Public Employee’s Retirement System (CalPERS) doesn’t have any special rights as a bond holder in the City of Stockton’s bankruptcy proceeding, even though California law explicitly says that it does.

“The implication for municipal bondholders – and for bond insurers such as Assured Guaranty Ltd. (NYSE:AGO), MBIA Inc. (NYSE:MBI) and Ambac Financial Group, Inc. (NASDAQ:AMBC) by extension – is the prospect of enhanced recoveries in future restructurings,” writes BTIG analyst Mark Palmer. “Bondholders would no longer have to settle for carving up the value that remained after state pension funds with exposure to distressed municipalities were paid in full, but would be placed in...