By Robin Respaut
SAN FRANCISCO, May 28 (Reuters) - Stockton, California, urged an appellate court on Thursday to back the city's exit from municipal bankruptcy after a holdout creditor appealed its plan.
Stockton said in a brief on Thursday that the creditor, two funds managed by Franklin Templeton Investments, was trying to relitigate its case using the same flawed legal arguments that a U.S. federal bankruptcy court judge had already rejected.
Franklin filed the opening brief to its appeal with the U.S. Bankruptcy Appellate Panel of the Ninth Circuit in March, claiming it would receive less than 1 percent of its unsecured claim and that "no bondholder has ever received so little in the history of municipal bankruptcy."
Stockton argued that the city "has slashed costs, imposed new taxes, and otherwise done everything it could to propose a plan that pays creditors fairly while ensuring that the city would emerge from bankruptcy on stable financial footing."
The Northern California city of about 300,000 filed for bankruptcy in 2012 and got approval to exit Chapter 9 last fall.
Stockton's case had been closely watched in the $3.6 trillion U.S. municipal debt market, with a focus on its pension dispute. The issue is of growing concern for state and local governments, especially whether pensions can be cut during bankruptcy.
The court ruled that Stockton had the authority to cut pensions but the city declined to do so. It instead eliminated health care for more than 1,000 of its retired employees, reworked labor agreements, reduced debts to various creditors, and increased the city's sales tax to help bolster finances. The plan took effect earlier this year.
(Reporting by Robin Respaut; Editing by Cynthia Osterman)