A federal bankruptcy judge's decision yesterday to approve the Chapter 9 bankruptcy of Stockton, Calif., increased the possibility that two bond insurers may have to make good on the $380 million in exposure they hold with the city.

Yesterday, U.S. Bankruptcy Court for Eastern District of California Judge Christopher Klein approved the Chapter 9 bankruptcy protection for Stockton filed in June of last year. In his ruling, the judge was critical of both bondholders and the insurers for opposing the city's petition and not working to resolve debt issues in good faith.

However, Klein did concede that at some point the city will have to make adjustments in its pension obligations before emerging from bankruptcy.

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