Bankruptcy: Detroit collapse casts cloud on bonds

Bond holders nervously await the federal judge’s decision on Detroit’s request Thursday for bankruptcy protection.


Afp July 21, 2013

WASHINGTON: The city of Detroit’s record bankruptcy filing puts the United States (US) municipal bond market in question as creditors face steep losses on the typically safe investment. Bond holders nervously await the federal judge’s decision on Detroit’s request Thursday for bankruptcy protection as it seeks relief from a staggering $18.5 billion debt. However, this news does not come as a surprise, given decades of decaying finance. On Friday, Standard & Poor’s cut its rating on Detroit’s general obligation debt from “CC” to “C”, just one notch above default, and said the outlook was “negative.” About half of Detroit’s debt is owed to health care benefits of the city’s 10,000 workers and 20,000 retirees. The city reportedly has about $2 billion to repay $12 billion in “unsecured” debt, which includes pension obligations. It was not known how long the federal judge would take to make a decision on whether Detroit is eligible for Chapter 9 protection.

Published in The Express Tribune, June 21st, 2013.

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