The city is in federal bankruptcy court in Sacramento today, fighting its last, recalcitrant creditor, Franklin High Yield Tax-Free Income Fund and Franklin California High Yield Municipal Fund.
What’s Franklin’s beef?
Franklin loaned the city $35 million in 2009 for “public-safety facilities and construction of seven parks, among other projects.” The city proposes to pay back … wait for it … $93,578.
Or 0.0046% of the loan.
Unsurprisingly, Franklin is squawking. Its attorneys say the city is cutting them out of Measure A tax money, 35 percent of which goes to paying Stockton debts. Other creditors got a better deal.
Why? One word: collateral.
The city regards Franklin’s collateral as expendable.
“Each debt issuance has its own terms, conditions and collateral,” explains Connie Cochran, the city’s spokesperson. “What they share in common, though, is that the value to the City of the collateral counts. Creditors other than Franklin can look to leases secured by assets that are essential City facilities, such as police and fire stations. The leases that secure the obligation to Franklin are of desirable but not essential properties.”
Whoever glommed onto the police station as collateral locked onto a must-have city asset. Other lenders secured their loans with the city’s General Fund. Franklin secured as collateral Swensen and Van Buskirk golf courses and the public facilities at Oak Park: the ice rink, ball park, swimming pool and tennis courts.
Nor does the city stand to lose these expendable assets. As with the parking garages, they merely stand to lose the “lease hold.” The city would still own the assets, but Franklin would gain the right to control them pending another resolution. Since most of the facilities lose money, you can see why Franklin is fighting for a better deal.