SAN FRANCISCO (Reuters) - Mammoth Lakes, one of three communities in California to recently declare bankruptcy, said on Wednesday it reached a tentative agreement to settle the legal dispute that threatened to swamp the town's finances.
The resort town of about 8,000 residents in California's Sierra Nevada Mountains said on its website that it settled a $43 million court judgment awarded to a developer over a property dispute.
The terms of the agreement will remain confidential until fully documented and executed, according to the town's statement.
The town has been in a legal fight since 2006 with Mammoth Lakes Land Acquisition Llc. Developer Terrence Ballas, who holds commercial development rights to the property in the lawsuit, also is part of the settlement.
Mammoth Lakes credited U.S. Bankruptcy Judge Elizabeth Perris with guiding the mediation that produced the settlement, adding that a term sheet with its key points has been signed.
The town also said litigation between the parties in its bankruptcy case will be put on hold, although some key deadlines will remain. The case is in U.S. Bankruptcy Court, Eastern District of California (Case 12-32463).
Settlement documentation is expected to be filed for court approval within weeks, Mammoth Lakes said, adding that it will hold public meetings to discuss how to finance the settlement.
Mammoth Lakes filed for Chapter 9 protection on the heels of Stockton, California, filing for bankruptcy.
Stockton, a city of nearly 300,000 people in the state's Central Valley, is the most populous U.S. city to seek protection from its creditors.
Stockton's revenues have plunged in recent years due to the implosion of its one red-hot housing market, requiring that the city use bankruptcy to renege on some of its obligations, including paying for medical coverage for its retired employees, according to city officials.
By contrast, Mammoth Lakes sought bankruptcy protection because it could not afford to pay the $43 million judgment against the town.
San Bernardino, a city of 210,000 residents east of Los Angeles, was the third California city to file for Chapter 9 protection in recent weeks.
Rating agencies and municipal debt market experts say more local governments in California may seek Chapter 9 protection.
(Reporting by Jim Christie; Editing by Lisa Shumaker)