Stockton (3654MF), California, trying to avert becoming the biggest U.S. city in bankruptcy, was sued by Wells Fargo & Co. (WFC) for failure to make payments on $32.8 million in bonds for parking garages.
Stockton, 80 miles (130 kilometers) east of San Francisco, missed a $779,935 payment due Feb. 25 on the revenue bonds issued in 2004, the bank said in documents filed March 7 in San Joaquin County Superior Court.
The Stockton City Council voted Feb. 28 to default on about $2 million in bond payments and pursue negotiations with creditors under a new state law aimed at preventing municipal bankruptcy filings. The farming center of 292,000 has struggled under mounting retiree health-care costs, dwindling tax revenue and accounting errors.
“The parking structures bring in revenue to the city,” City Council member Dale Fritchen said today in a telephone interview. “It doesn’t make any sense as to why we would default on those properties that we are making money on.”
A Stockton parking-revenue bond sold in June 2004 and maturing in September 2014 traded Feb. 29 at an average yield of 5.31 percent, according to data compiled by Bloomberg.
“The action taken by the creditor was not unanticipated,” a Stockton spokeswoman, Connie Cochran, said by e-mail. She declined to comment further.
Wells Fargo said in its complaint that it was acting in its capacity as indenture trustee for the bonds issued by the Stockton Public Finance Authority.
The case is Wells Fargo Bank, National Association v. City of Stockton, 2012-00277662, Superior Court of San Joaquin County (Stockton).
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