Chapter 9 – words that are going to be on a lot of lips for some time to come. Last week, Detroit filed for bankruptcy protection under Chapter 9 of the United States Bankruptcy Code, and the Motor City became the largest municipal bankruptcy in history – definitely a dubious distinction. The financial press has focused most attention on the immediate impact to investors in Detroit’s debt, but in our opinion, there will be effects felt by municipal bond investors more broadly, as well as by Detroit’s citizens and workers.
A good deal of ink was spilled last week about how some municipal bond market participants were “concerned” about how some of the city’s general-obligation bonds (those are municipal bonds backed by the full faith and credit of a municipality) were classified as “unsecured” by the Detroit’s emergency manager. Read more