For those following the Stockton bankruptcy trial, I saw this email from Franklin late Friday night:
“We are representing our fund investors which also includes retirees – the Stockton debt at issue is held by our Franklin California High Yield Municipal and Franklin High Yield Tax-Free Income funds.
- “We are talking about the need for Stockton to be fair and equitable with ALL creditors – this is not about Franklin Templeton wanting more than others, this is about Franklin Templeton wanting fair and equitable treatment for all creditors – as this is in the best interest of our fund investors.
- “Stockton’s plan for adjustment is completely unbalanced, as we understand that every other creditor has settled for 50 to 100 cents on the dollar – with the sole exception of the Franklin funds, which were offered just one cent on the dollar. This is not something we can or will accept on behalf of our fund investors.
- “Above all else, it is important to keep in mind that in representing our funds we are standing up for the individuals who have entrusted us with their savings.
“The Stockton debt at issue is held in our Franklin California High Yield Municipal and Franklin High Yield Tax-Free Income funds. Our focus continues to be on doing what is in the best interest of our fund investors, many of whom are retirees – we are responsible for protecting the value of their investments. We are not willing to accept Stockton’s plan of adjustment because they have not made any attempt to treat all creditors fairly.
“In the Summary Objection to the City of Stockton’s Plan of Adjustment (filed on February 26, 2014) the following points, among others, were made on behalf of the Franklin funds:
“From the start, Stockton made no attempt to offer all creditors fair and equitable treatment.
- “The Plan fails the Bankruptcy Code’s requirements because the City has not made an effort to provide the Franklin funds with a reasonable recovery. In particular, the Plan seeks to discharge our $35 million loan through a single payment of approximately $350,000 without applying any future revenues toward repayment to the Franklin funds. This would amount to a recovery of one cent on the dollar for our fund investors.
- “The Plan discriminates against the Franklin funds by treating other creditors far more favorably. We understand that every other creditor (including other bondholders) has settled for 50 to 100 cents on the dollar – with the sole exception being the Franklin funds. The offer of one cent on the dollar is not an amount that we can or will accept on behalf of our fund investors.
- “In addition, the plan repays other creditors in full or in large part from future revenues over the next 40 years. The City does not propose to share any of those future revenues with the Franklin funds.
“The City has made no meaningful response to those points. While our goal is to be a productive partner in the City’s restructuring on equal footing with the City’s other creditors, the meager recovery that the City is attempting to cram down through the Plan has left us with no choice but to object so that we can deliver a fair recovery for our investors.
“Above all else, it is important to keep in mind that in representing our funds we are standing up for the individuals who have entrusted us with their savings.”