Are cities like Stockton “stragetically defaulting” on bonds? Reuters entertains the question.
The theory is that a city’s leaders, knowing a bond is insured, may choose default on it, and not on uninsured bonds. That way bondholders will not suffer a loss.
Did Stockton do that? No, said city spokesperson Connie Cochran.
“The reason the city suspended payment on three bonds was because the payments were due between now ane the end of the fiscal year,” Cochran explained. “And the payment would be coming from the general fund.”