Detroit to default on $2.5B of debt

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Detroit to default on $2.5B of debt

Postby Booper » Tue Jun 25, 2013 1:43 am

I haven't seen this talked about on the forum yet (perhaps I missed it), but it seems like the biggest muni finance news in a while. Anyone where own Detroit bonds?

Detroit won't pay $2.5B it owes

Detroit bankruptcy could force museums to auction off cultural treasures to help pay city debt
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Re: Detroit to default on $2.5B of debt

Postby stlutz » Tue Jun 25, 2013 2:56 am

Insurers, not the mutual funds that hold the debt, will take the hit.

http://www.freep.com/article/20130613/C ... san-Tompor
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Re: Detroit to default on $2.5B of debt

Postby umfundi » Tue Jun 25, 2013 3:49 am

This train wreck has been so long coming, no one is (or should be) surprised. Least of all, I imagine, Vanguard, Fidelity, etc.

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Re: Detroit to default on $2.5B of debt

Postby bottomfisher » Tue Jun 25, 2013 6:06 am

Did quick overview of Vg Long-Term Tax Exempt holdings as of 03/31/13. It actually held 7 bonds with Detroit in their name. I'm not sure which ones are tied to a potential bankruptcy; but as noted above these likely insured regardless.

Holding / Coupon Rate / Maturity Date / Face Amount / Market Value / Size out of 1004 holdings

Detroit MI Sewer System Revenue 5.500% 07/01/2029 $8,300,000 $9,893,351 268/1004

Detroit MI Water Supply System Revenue 7.000% 07/01/2036 $5,500,000 $6,586,800 472/1004

Detroit MI Sewer System Revenue 5.125% 07/01/2033 $3,970,000 $4,380,816 707/1004

Detroit MI GO 5.000% 04/01/2017 $3,170,000 $3,219,389 811/1004

Detroit MI GO 5.000% 04/01/2016 $3,015,000 $3,110,877 819/1004

Detroit MI GO 5.000% 04/01/2015 $2,875,000 $2,979,995 832/1004

Detroit/Wayne County MI Stadium Authority Revenue 5.000% 10/01/2026 $2,500,000 $2,734,400 862/1004
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Re: Detroit to default on $2.5B of debt

Postby bottomfisher » Tue Jun 25, 2013 6:31 am

I also own Vg Tax Managed Balanced fund. It held only 1 bond with Detroit in the name out of 962 total bonds. I don't own Vg High Yield Tax-Exempt but I perused it too; it held at least 5 bonds with Detroit in their name out of 1057 total bonds. I don't own Vg Intermediate Tax Exempt. Its a much larger fund with 4152 bonds; I didn't peruse its holdings
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Re: Detroit to default on $2.5B of debt

Postby neurosphere » Tue Jun 25, 2013 6:56 am

bottomfisher wrote:Did quick overview of Vg Long-Term Tax Exempt holdings as of 03/31/13. It actually held 7 bonds with Detroit in their name. I'm not sure which ones are tied to a potential bankruptcy; but as noted above these likely insured regardless.


I'm fairly certain, but not positive, that the ones with "water" and "sewer" in the name are not the ones at risk. But don't know about the others.
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Re: Detroit to default on $2.5B of debt

Postby rokidtoo » Tue Jun 25, 2013 10:09 pm

neurosphere wrote:
bottomfisher wrote:Did quick overview of Vg Long-Term Tax Exempt holdings as of 03/31/13. It actually held 7 bonds with Detroit in their name. I'm not sure which ones are tied to a potential bankruptcy; but as noted above these likely insured regardless.


I'm fairly certain, but not positive, that the ones with "water" and "sewer" in the name are not the ones at risk. But don't know about the others.


A number of communities in S.E. Michigan depend on Detroit water. Therefore, Michigan would make sure that utility continued to provide uninterrupted service. I'm also pretty sure Michigan, Ohio, and Canada wouldn't want Detroit dumping raw sewage into the Great Lakes. However, Detroit sewer in general...?
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Re: Detroit to default on $2.5B of debt

Postby MnD » Tue Jun 25, 2013 10:59 pm

Which represents 0.063% of the municipal bond market and recoveries via insurance and other means will be very significant.
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Re: Detroit to default on $2.5B of debt

Postby neurosphere » Wed Jun 26, 2013 12:25 pm

rokidtoo wrote:A number of communities in S.E. Michigan depend on Detroit water. Therefore, Michigan would make sure that utility continued to provide uninterrupted service. I'm also pretty sure Michigan, Ohio, and Canada wouldn't want Detroit dumping raw sewage into the Great Lakes. However, Detroit sewer in general...?


What I meant was, the bonds from the water and sewer are secured/backed by the revenue from the water and sewer bills. The payments to the bondholders do not rely on the actual city of detroit general finances. The water/sewer system is financially sound, and those bonds are not affected by default of the city itself. Th

I cannot vouch for any of that information though. :)

Detroit bonds in general are rated Caa3 by moody's, and the water and sewer system is B1. Until recently the water and sewer system was rated in the "A"s.
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Re: Detroit to default on $2.5B of debt

Postby rokidtoo » Wed Jun 26, 2013 9:39 pm

neurosphere wrote:
rokidtoo wrote:A number of communities in S.E. Michigan depend on Detroit water. Therefore, Michigan would make sure that utility continued to provide uninterrupted service. I'm also pretty sure Michigan, Ohio, and Canada wouldn't want Detroit dumping raw sewage into the Great Lakes. However, Detroit sewer in general...?


What I meant was, the bonds from the water and sewer are secured/backed by the revenue from the water and sewer bills. The payments to the bondholders do not rely on the actual city of detroit general finances. The water/sewer system is financially sound, and those bonds are not affected by default of the city itself. Th

I cannot vouch for any of that information though. :)

Detroit bonds in general are rated Caa3 by moody's, and the water and sewer system is B1. Until recently the water and sewer system was rated in the "A"s.


Detroit is very poor, e.g. $15,261 per capita income in 2010. In contrast, the Michigan's 2010 per capita income was $25,135 and Mississippi's (poorest state) was $19,977. Therefore, there's a limit to the revenue that can be generated from Detroit residents, whether in the form of taxes or public utility charges. Since the Detroit suburbs are relatively better off financially, any services they consume, e.g. water, are in better fiscal shape.
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Re: Detroit to default on $2.5B of debt

Postby umfundi » Wed Jun 26, 2013 10:00 pm

I don't think anyone here has special information, so it's not prudent to speculate.

Detriot Water (DW) supplies a large part of the population in SE Michigan outside of Detroit. Sewer services are mostly I believe provided by county, not by Detroit Water.

Since DW has its own income stream, its bonds' obligations should be separate from the city's. Nonetheless, there have been newspaper articles asking whether bonds used for city obligations were floated using the credit of DW.

Who knows? Certainly, all of this is public knowledge.

If I may venture a slightly political opinion, it is that the Michigan Governor is about the only responsible person in the government of the entire state, including especially the state legislature. In breaking news, the head of the Detroit City Council (Charles Pugh) has gone AWOL, and has now been fired by the Detroit Emergency Manager, Kevyn Orr.

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Re: Detroit to default on $2.5B of debt

Postby heyyou » Thu Jun 27, 2013 12:48 am

When the issuer defaults, does the entity consider making partial payments, or stops making any payments waiting for the courts to settle the accounts? On that size of debt, I would think that there is some money for payment, just not enough money. I'm often wrong.
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Re: Detroit to default on $2.5B of debt

Postby stratton » Thu Jun 27, 2013 2:00 am

Just to add more confusion...

From what I can tell bond insurance only pays the scheduled coupon payments to maturity. Not sure what happens then. There is apparently no immediate return of principal if an issuer defaults.

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Re: Detroit to default on $2.5B of debt

Postby abuss368 » Thu Jun 27, 2013 7:42 am

A sad situation indeed.
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Re: Detroit to default on $2.5B of debt

Postby rokidtoo » Thu Jun 27, 2013 8:40 am

umfundi wrote:I don't think anyone here has special information, so it's not prudent to speculate.

Detriot Water (DW) supplies a large part of the population in SE Michigan outside of Detroit. Sewer services are mostly I believe provided by county, not by Detroit Water.



Per the Detroit Water and Sewage Department's fact sheet:

Water - "The 1,079-square-mile water service area, which includes Detroit and 127 suburban communities, makes up approximately 40 percent of the state's population."

Sewer - "Wastewater service is also provided to a 946-square-mile area that encompasses Detroit and 76 neighboring communities."

General - The Detroit Water and Sewerage Department has 1,978 employees, has the fifth lowest combined water and sewerage rates per month among the 20 most populated cities in the United States, has an annual operating budget of approximately $408,197,200 million, and, statutorily, cannot make a profit.

http://www.dwsd.org/
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Re: Detroit to default on $2.5B of debt

Postby rokidtoo » Thu Jun 27, 2013 9:27 am

From the Detroit Water and Sewer Department's (DWSD) CFO report:

"...DWSD’s funds cannot be used to subsidize other funds, including the City of
Detroit’s general fund."
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Re: Detroit to default on $2.5B of debt

Postby Epsilon Delta » Thu Jun 27, 2013 9:52 am

stratton wrote:Just to add more confusion...

From what I can tell bond insurance only pays the scheduled coupon payments to maturity. Not sure what happens then. There is apparently no immediate return of principal if an issuer defaults.

Paul

Why is this confusing? It's insurance not a credit default swap or other exotica. The purpose of insurance is to restore the status quo ex ante. Usually the insurance contract spells out that the insurance covers the timely payment of principal and interest. The bond holders were expecting a series of payments, and they get a series of payments, including the return of capital on final maturity.
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Re: Detroit to default on $2.5B of debt

Postby hicabob » Thu Jun 27, 2013 9:57 am

Detroit appears to be the urban planners almost unsolvable problem - but hopefully someone will come up with a solution - Perhaps the soon to be coming refugees from Afghanistan can be subsidized and persuaded to settle there ? So many used-to-be beautiful buildings in such a sad condition.
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Re: Detroit to default on $2.5B of debt

Postby cheese_breath » Thu Jun 27, 2013 10:09 am

Not specifically on topic, but part of the bigger picture

http://www.freep.com/article/20130627/C ... san-Tompor
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Re: Detroit to default on $2.5B of debt

Postby Valuethinker » Thu Jun 27, 2013 4:19 pm

Epsilon Delta wrote:
stratton wrote:Just to add more confusion...

From what I can tell bond insurance only pays the scheduled coupon payments to maturity. Not sure what happens then. There is apparently no immediate return of principal if an issuer defaults.

Paul

Why is this confusing? It's insurance not a credit default swap or other exotica. The purpose of insurance is to restore the status quo ex ante. Usually the insurance contract spells out that the insurance covers the timely payment of principal and interest. The bond holders were expecting a series of payments, and they get a series of payments, including the return of capital on final maturity.


What Stratton is saying though is that the coupons are insured, but not the repayment of principal-- you are describing something different?
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Re: Detroit to default on $2.5B of debt

Postby Dale_G » Thu Jun 27, 2013 4:45 pm

there is no immediate repayment of principal on default. The principal is repaid at final maturity - the same as insured mortgage securities.

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Re: Detroit to default on $2.5B of debt

Postby Epsilon Delta » Thu Jun 27, 2013 4:54 pm

Valuethinker wrote:
Epsilon Delta wrote:
stratton wrote:Just to add more confusion...

From what I can tell bond insurance only pays the scheduled coupon payments to maturity. Not sure what happens then. There is apparently no immediate return of principal if an issuer defaults.

Paul

Why is this confusing? It's insurance not a credit default swap or other exotica. The purpose of insurance is to restore the status quo ex ante. Usually the insurance contract spells out that the insurance covers the timely payment of principal and interest. The bond holders were expecting a series of payments, and they get a series of payments, including the return of capital on final maturity.


What Stratton is saying though is that the coupons are insured, but not the repayment of principal-- you are describing something different?

I believe Stratton is mistaken. All the insured bonds I have seen are insured for principal and interest. I suppose it is possible that somewhere there is a bond that is insured for interest but not principal, but I have never seen it. IMHO calling such beast an "insured bond" would be, at best, deliberately misleading.
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Re: Detroit to default on $2.5B of debt

Postby Valuethinker » Fri Jun 28, 2013 10:38 am

Dale_G wrote:there is no immediate repayment of principal on default. The principal is repaid at final maturity - the same as insured mortgage securities.

Dale


Fascinating.

The normal process with a debt, any debt, is that the creditors petition the court for bankruptcy if an event of default has taken place (eg skipped interest payment).

At which point, the administration process then takes place and the debts of the company are repaid to the extent that they are going to be repaid.

If a company goes broke say 10 years into the life of a 30 year bond then the bondholders get their money back when the courts have resolved all the issues (in a complex bankruptcy like Lehman, 7-8 years I believe is the estimate for final payout), there's no need for them to wait 20 years.

(I'll ignore Chapter 11, that's a whole another can of worms, the company secures from the court a stay on payments of all debts)

Are you saying that this is different for the municipal class of issuers? Or for all issuers?

Is US bankruptcy law so very different from UK/ Canadian?
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Re: Detroit to default on $2.5B of debt

Postby Valuethinker » Fri Jun 28, 2013 10:40 am

hicabob wrote:Detroit appears to be the urban planners almost unsolvable problem - but hopefully someone will come up with a solution - Perhaps the soon to be coming refugees from Afghanistan can be subsidized and persuaded to settle there ? So many used-to-be beautiful buildings in such a sad condition.


It's already started. In that very low housing costs have attracted urban homesteaders, artists etc to Detroit (and to Buffalo). A significant urban farming movement.

However if law and order cannot be maintained, and if essential civic services cannot be funded, it's not likely to be much more than a quixotic gesture.

But Detroit is getting 'funky'.

The US will have c. 450 million people by mid century (ie projecting 1% population growth pa), so it's hard to imagine these places will remain abandoned forever.
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Re: Detroit to default on $2.5B of debt

Postby Valuethinker » Fri Jun 28, 2013 10:42 am

heyyou wrote:When the issuer defaults, does the entity consider making partial payments, or stops making any payments waiting for the courts to settle the accounts? On that size of debt, I would think that there is some money for payment, just not enough money. I'm often wrong.


AFAIK once the court has granted bankruptcy *all* payments stop, until the court orders payouts (of outstanding interest and principal) by class of debt. I imagine this would take at least a year, maybe 2-3 depending on how much litigation there is.
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Re: Detroit to default on $2.5B of debt

Postby SpringMan » Fri Jun 28, 2013 11:01 am

I sold my stake in Fidelity's Michigan Municipal Income fund (FMHTX) at a modest loss not just because of Detroit issues, it also presented a tax loss harvest opportunity. I grew weary of losing money, BTW same can be said about bond funds in general.
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Re: Detroit to default on $2.5B of debt

Postby rokidtoo » Fri Jun 28, 2013 4:17 pm

Valuethinker wrote:However if law and order cannot be maintained, and if essential civic services cannot be funded, it's not likely to be much more than a quixotic gesture.

For the last forty years there has been tremendous animosity between the suburbs and Detroit. However, when I visited Detroit this spring, I was pleasantly surprised by the emerging consensus that Detroit's demise was damaging Michigan's "brand". Suburban Schadenfreude has been replaced by "how can we fix this?" :beer ----Jim
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Re: Detroit to default on $2.5B of debt

Postby chicagobear » Fri Jun 28, 2013 9:43 pm

They opened a Whole Foods in Detroit and Dan Gilbert of Quicken Loans is buying up downtown and bringing in people and businesses. If things get cheap enough...
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Re: Detroit to default on $2.5B of debt

Postby umfundi » Fri Jun 28, 2013 10:09 pm

chicagobear wrote:They opened a Whole Foods in Detroit and Dan Gilbert of Quicken Loans is buying up downtown and bringing in people and businesses. If things get cheap enough...

Yes, and they are planning a new arena for the Red Wings near the newish stadiums for the Detroit Tigers and Lions.

But, that is window dressing. If you drive through the neighborhoods around City Airport and much of the rest of the residential areas of the city, the devastation is breathtaking. Mile after mile after mile.

The confluence of economic challenges and mismanagement and corruption in city government have taken their toll to create an unimaginable problem.

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Re: Detroit to default on $2.5B of debt

Postby Epsilon Delta » Fri Jun 28, 2013 10:15 pm

Valuethinker wrote:
Are you saying that this is different for the municipal class of issuers? Or for all issuers?

Is US bankruptcy law so very different from UK/ Canadian?


These are insured municipal bonds. There are three parties to the contract(s): The bond issuer, the bond holder and the insurance company. I can't give the exact legal details but if the bond issuer defaults effectively the bond holder becomes the creditor of the insurance company, under the terms of the original bond. The insurance company becomes a creditor of the issuer and gets whatever comes out of the bankruptcy, which is settled more or less the way you expect a bankruptcy to be settled, i.e. lump sum payment of part of the principal and cancellation of the rest of the debt.

In practice the settlement of the bankruptcy may be slightly different. In any bankruptcy the if the appropriate creditors can reach an unanimous agreement with the debtor the courts will accept that agreement. In the case of Detroit almost all the bonds were insured so they only have to deal with a small number of insurance companies, who will tend to be economically rational. Thus there is a reasonably good chance that there will be a negotiated settlement rather than a drag out court fight.
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Re: Detroit to default on $2.5B of debt

Postby Ged » Fri Jun 28, 2013 10:44 pm

Epsilon Delta wrote:
In practice the settlement of the bankruptcy may be slightly different. In any bankruptcy the if the appropriate creditors can reach an unanimous agreement with the debtor the courts will accept that agreement. In the case of Detroit almost all the bonds were insured so they only have to deal with a small number of insurance companies, who will tend to be economically rational. Thus there is a reasonably good chance that there will be a negotiated settlement rather than a drag out court fight.


From what I have read the idea of this default is to restructure things to avoid bankruptcy which is sort of the stick the city has to encourage cooperation.
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Re: Detroit to default on $2.5B of debt

Postby Epsilon Delta » Fri Jun 28, 2013 11:04 pm

Ged wrote:
Epsilon Delta wrote:
In practice the settlement of the bankruptcy may be slightly different. In any bankruptcy the if the appropriate creditors can reach an unanimous agreement with the debtor the courts will accept that agreement. In the case of Detroit almost all the bonds were insured so they only have to deal with a small number of insurance companies, who will tend to be economically rational. Thus there is a reasonably good chance that there will be a negotiated settlement rather than a drag out court fight.


From what I have read the idea of this default is to restructure things to avoid bankruptcy which is sort of the stick the city has to encourage cooperation.


You're quite right. I should have said some thing like "insolvency process" rather than "bankruptcy". Formally filing for bankruptcy is just a small (though important) part of a sequence of events including negotiations, brinkmanship, payments, non-payments, legal filings and other actions. Depending on how everybody behaves different actions can occur in different orders. If everyone is being professional all of the negotiation can be done before (or instead of) an actual bankruptcy. If the negotiators conclude that a formal bankruptcy is desirable (because it can prevent uncertainty due to third parties) an agreement can be presented to bankruptcy court for it's OK.

Edited because the above says what I mean better than what I originally wrote.
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Re: Detroit to default on $2.5B of debt

Postby Valuethinker » Sun Jun 30, 2013 11:52 am

Epsilon Delta wrote:
Valuethinker wrote:
Are you saying that this is different for the municipal class of issuers? Or for all issuers?

Is US bankruptcy law so very different from UK/ Canadian?


These are insured municipal bonds. There are three parties to the contract(s): The bond issuer, the bond holder and the insurance company. I can't give the exact legal details but if the bond issuer defaults effectively the bond holder becomes the creditor of the insurance company, under the terms of the original bond. The insurance company becomes a creditor of the issuer and gets whatever comes out of the bankruptcy, which is settled more or less the way you expect a bankruptcy to be settled, i.e. lump sum payment of part of the principal and cancellation of the rest of the debt.

In practice the settlement of the bankruptcy may be slightly different. In any bankruptcy the if the appropriate creditors can reach an unanimous agreement with the debtor the courts will accept that agreement. In the case of Detroit almost all the bonds were insured so they only have to deal with a small number of insurance companies, who will tend to be economically rational. Thus there is a reasonably good chance that there will be a negotiated settlement rather than a drag out court fight.


OK I think I understand. In an insured bond, the insurer takes over payment and the bond simply behaves as if it was issued by the insurer, rather than the municipality?

Meanwhile the insurer pursues the issuer in court via the bankruptcy process.

If I understand what you wrote correctly then thank you, that is clearer-- thank you very much.
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Re: Detroit to default on $2.5B of debt

Postby rokidtoo » Sun Jun 30, 2013 12:34 pm

FYI. A paper by Morningstar's Elizabeth Foos that discusses Detroit's financial situation.

http://corporate.morningstar.com/us/htm ... etroit.pdf
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Re: Detroit to default on $2.5B of debt

Postby nisiprius » Sun Jun 30, 2013 3:53 pm

How quickly falsified predictions are forgotten. I can't believe there is a thread entitled "Detroit to default on $2.5B of debt" that has had 33 posts without anybody even mentioning the name Meredith Whitney. (Please don't anyone say "she wasn't wrong, just early." If anyone does, please just assume that I thought of a snarky retort but didn't post it...)
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Re: Detroit to default on $2.5B of debt

Postby umfundi » Sun Jun 30, 2013 5:02 pm

Here's an opinion piece from the Detroit Free Press. The point is simply that there are so many players involved in the Detroit debacle that it (resolution of the financial crisis) is likely to be a long and messy process.

http://www.freep.com/article/20130630/O ... Detroiters

The seeds of Detroit's decline were sown long ago, about the time Meredith Whitney was born. I moved here in 1980 and in my opinion have observed a more or less linear progression from then till now. A tragic situation, with plenty of blame to be shared by all, over many years.

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Re: Detroit to default on $2.5B of debt

Postby gasman » Mon Jul 01, 2013 8:33 am

Anyone have on opinion on the plan to treat Detroit's G.O. debt as "unsecured"?

Does this have implications for the rest of the municipal bond market?
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Re: Detroit to default on $2.5B of debt

Postby bottomfisher » Mon Jul 01, 2013 9:35 am

gasman wrote:Anyone have on opinion on the plan to treat Detroit's G.O. debt as "unsecured"?

Does this have implications for the rest of the municipal bond market?


The brief article linked in the OP's post seems to suggest their general obligation bonds are the one's at risk for default. I think the implications for investors would be higher insurance rates to cover municipal bonds which would likely ultimately be passed on to investors. Perhaps interest rates would increase marginally in exchange for greater potential risk from bonds from certain municipalities with questionable finances. But just speculation on my behalf
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Re: Detroit to default on $2.5B of debt

Postby bottomfisher » Tue Jul 02, 2013 11:42 pm

Video report from Morningstar: Will Detroit's Muni Breakdown Force Others Off the Road? The outcome of the Detroit's distressed-debt situation could be a litmus test for how other municipalities nationwide move forward with their payment obligations.

http://www.morningstar.com/cover/videoc ... ?id=600859
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Re: Detroit to default on $2.5B of debt

Postby umfundi » Tue Jul 02, 2013 11:53 pm

bottomfisher wrote:Video report from Morningstar: Will Detroit's Muni Breakdown Force Others Off the Road? The outcome of the Detroit's distressed-debt situation could be a litmus test for how other municipalities nationwide move forward with their payment obligations.

http://www.morningstar.com/cover/videoc ... ?id=600859


Good discussion. The "first act" of a potentially long drama.

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Re: Detroit to default on $2.5B of debt

Postby jdb » Wed Jul 03, 2013 8:15 pm

Interesting that there seems to be a price increase for Detroit Water and Sewer Revenue Bonds from the lows of last few months. Suspect there is feeling that they won't take as much of a haircut, if any, long term. But too complicated for me to figure out, and too risky a market.
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Re: Detroit to default on $2.5B of debt

Postby cheese_breath » Wed Jul 03, 2013 8:34 pm

jdb wrote:Interesting that there seems to be a price increase for Detroit Water and Sewer Revenue Bonds from the lows of last few months. Suspect there is feeling that they won't take as much of a haircut, if any, long term. But too complicated for me to figure out, and too risky a market.

The talk is about a regional authority assuming control over the operation of the system, similar to what they did for Cobo Hall. It is felt the change in management could be a big plus.
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Re: Detroit to default on $2.5B of debt

Postby jdb » Thu Jul 04, 2013 10:58 am

cheese_breath wrote:
jdb wrote:Interesting that there seems to be a price increase for Detroit Water and Sewer Revenue Bonds from the lows of last few months. Suspect there is feeling that they won't take as much of a haircut, if any, long term. But too complicated for me to figure out, and too risky a market.

The talk is about a regional authority assuming control over the operation of the system, similar to what they did for Cobo Hall. It is felt the change in management could be a big plus.

Thanks cheese breath. I know almost nothing about these particular revenue bonds other than that they are paying attractive yields with relatively short durations absent haircut or default. I tend to look for individual muni buying opportunities, especially essential services revenue bonds, in distress situations so may look into these further but as someone who once lived in Detroit many years ago I feel for the community in this financial debacle.
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Re: Detroit to default on $2.5B of debt

Postby cheese_breath » Thu Jul 04, 2013 11:26 am

jdb wrote:
cheese_breath wrote:
jdb wrote:Interesting that there seems to be a price increase for Detroit Water and Sewer Revenue Bonds from the lows of last few months. Suspect there is feeling that they won't take as much of a haircut, if any, long term. But too complicated for me to figure out, and too risky a market.

The talk is about a regional authority assuming control over the operation of the system, similar to what they did for Cobo Hall. It is felt the change in management could be a big plus.

Thanks cheese breath. I know almost nothing about these particular revenue bonds other than that they are paying attractive yields with relatively short durations absent haircut or default. I tend to look for individual muni buying opportunities, especially essential services revenue bonds, in distress situations so may look into these further but as someone who once lived in Detroit many years ago I feel for the community in this financial debacle.

A lot is still up in the air. I wouldn't buy anything until things shake out a bit.
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Re: Detroit to default on $2.5B of debt

Postby reason-logic » Thu Jul 04, 2013 11:28 am

Remember, even if a Detroit bond is insured, you also need to look at the health of the insurer. There are huge muni defaults in San Bernardino, Stockton, Jefferson County now Detroit. So a weak insurer with exposures to all of these might not have capacity to pay (this is not like the FDIC) so you need to look at the health of the bond insurer in order to judge the risk of owning these bonds, even if insured.
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Re: Detroit to default on $2.5B of debt

Postby umfundi » Thu Jul 04, 2013 12:36 pm

If you are interested in what is going on with Detroit's finances, I suggest you go to Google, select "News" and search on:

> Kevyn Orr Detroit

https://www.google.com/search?hl=en&gl= ... =kevyn+orr

Kevyn Orr is the Detroit Emergency Financial Manager. Doing this search one a week or so will keep you current with what matters, I believe.

Coverage by the Detroit Free Press has been excellent, IMHO. If you tilt to the right, try the Detroit News.

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Re: Detroit to default on $2.5B of debt

Postby umfundi » Sat Jul 06, 2013 7:36 pm

Déjà Vu is not a prediction
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Re: Detroit to default on $2.5B of debt

Postby rokidtoo » Sat Jul 06, 2013 8:00 pm

Same story additional detail from the Detroit Free Press.---Jim
http://www.freep.com/article/20130705/N ... tion-swaps
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Re: Detroit to default on $2.5B of debt

Postby umfundi » Thu Jul 18, 2013 5:46 pm

So, Detroit files for bankruptcy, precipitated it seems by lawsuits over pensions.

The institutional holders of general obligation debt were also not going quietly:

http://www.freep.com/article/20130716/B ... bankruptcy

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Re: Detroit to default on $2.5B of debt

Postby jack1719 » Fri Jul 19, 2013 8:37 am

Bondholders are gonna be the ones that take the biggest haircut,retirees with pensions etc...judges seem to understand that these are real people,alot of elderly etc.. and very little if anything will pensioners be asked to cut,a judge might feel the need for everyone to contribute to cutbacks,so he might make a tiny cut to them,but if you look at cases in other towns that have filed for bankrupty,its gonna be pretty much that same path...GM bankruptcy retires,pensionsers etc..pretty much got off scott free,it really didn't have to do with bailout money either.

the big question is how much of black eye will this be to bonds and bond holders now and in future..
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