In a long-awaited decision on municipal bankruptcy workouts, a federal judge last week ruled that California cities may alter pensions payments in Chapter 9 bankruptcy proceedings. This decision gives bankrupt municipalities the ability to cut payments to not only bondholders, but to pensioners as well, which puts bondholders on stronger legal footing than once thought. California Public Employees’ Retirement System (CalPERS) has argued that pension cuts should not be allowed and that pensioners are senior to bondholders on the capital structure. A CalPERS appeal to the ruling is likely, and while this ruling was directly related to Stockton, California, it will likely have implications for San Bernardino as well. As bondholders, we are pleased with the decision, but work hard to avoid these types of situations altogether. While the holders of Stockton debt may receive more than originally thought , they will still face a significant haircut.