The Financial Times asks some interesting questions about Detroit?s bankruptcy filing
Unsecured creditors have resisted Mr Orr?s efforts to treat all creditors on an equal footing, which could lead to large reductions in the value of their claims.
Holders of so-called general obligation bonds insist their claims are backed by the city?s taxation powers, while pension fund holders believe their rights are constitutionally protected and should have priority.
?To treat holders of general obligation bonds backed by the full faith and credit of a sovereign entity as unsecured and impaired has implications for the municipal market,? said Peter Hayes, BlackRock?s head of municipal bonds who has a $25m slice of Detroit?s debt.Detroit?s Chapter 9 filing could also hit the business models of companies that provide insurance on municipal bonds. ?If issuers come out with their hands out asking for restructuring, it will lead to questions about the viability of the insurers,? one creditor says.
It also notes:
Detroit?s last five debt offerings were done on a secured basis, suggesting that investors were nervous of the city?s finances, according to a state official.
Meanwhile, its issues that were not secured by collateral or pledges of revenue streams carried a relatively generous coupon, suggesting that the bonds were riskier than those of other municipalities.
?Relatively generous coupon? ? hmmm. Recent Detroit debt buyers might have to hold themselves accountable for their losses. Or do we file this under ?Dude, where?s my bailout??
Detroit files for bankruptcy? (gated ? read it with free registration, though).
Source: http://www.forexlive.com/blog/2013/07/18/the-financial-times-on-detroits-bankruptcy-filing/
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