Actuarial Outpost

Actuarial Outpost (http://www.actuarialoutpost.com/actuarial_discussion_forum/index.php)
-   Finance - Investments (http://www.actuarialoutpost.com/actuarial_discussion_forum/forumdisplay.php?f=12)
-   -   Detroit bankruptcy watch (http://www.actuarialoutpost.com/actuarial_discussion_forum/showthread.php?t=263796)

campbell 07-16-2013 01:21 PM

Detroit bankruptcy watch
 
http://www.detroitnews.com/article/2...-clock-ticking

Quote:

Gov. Rick Snyder has not yet decided whether Detroit will become the largest city in American history to file Chapter 9 bankruptcy, but a series of crucial meetings set for this week should answer that question.

“It’s a very challenging situation,” Snyder said in an interview Monday. “The process is still going on. The preference is to avoid bankruptcy, but bankruptcy has to be a tool that’s available. None of this should be a surprise to anyone.”

The stakes are enormous. A Chapter 9 bankruptcy would have profound effects for Detroit, its residents, the municipal finance markets and the presumed sanctity of public-sector pensions, particularly if the city’s lawyers can persuade a federal judge that pension funds and general obligation bondholders are unsecured creditors the city mostly cannot repay.

“This is push comes to shove week,” a ranking source close to the process said. If bankruptcy is “going to happen, it’s going to happen in July. I don’t think the decision has been made. It’s certainly looming.”


.....
By accident or by design, the governor is poised to unleash a titanic clash that would pit America’s poorest major city against an array of creditors demanding repayment from a cash-strapped Detroit already taxed to its statutory limit. Chapter 9 strengthens the city’s ability to execute the restructuring, provided Orr and his team can get a bankruptcy judge to agree.

Creditors mostly don’t. In a federal filing, Orr indicated that he had reached “an important settlement” with one creditor, the first in a complex series of talks aimed at setting a template for a restructuring either in or out of bankruptcy.

Others are less receptive to his offer to swap a $2 billion “nonrecourse participation note” for $11.45 billion in unsecured claims, a payout that equals less than 20 cents on the dollar.

“Given the extremely low proposed return to unsecured creditors, various creditor groups have an incentive to contest many of the aspects of the plan in a Chapter 9 bankruptcy rather than settle on these terms,” Barclays Municipal Research wrote in a note.

“With proposed recoveries so low and the EM and Gov. Snyder’s administration coming out so stridently against the unlimited tax bondholders, the opportunity cost of litigation appears low; in other words, all that the bondholders or bond insurers have to lose in this instance is effectively their cost of litigation.”




campbell 07-16-2013 01:24 PM

I spun this thread off from the muni watch thread.

First Detroit-specific post in that thread is here:
http://www.actuarialoutpost.com/actu...85#post5910885

campbell 07-16-2013 05:56 PM

http://detroit.cbslocal.com/2013/07/...or-bankruptcy/

Quote:

Is Detroit Headed For Bankruptcy?
July 15, 2013 7:33 AM

Yes.

Oh wait, there's more?

Quote:

DETROIT (WWJ) – It’s expected to be a huge week in Detroit, as we expect to find out whether the city will file for bankruptcy.

In the meantime, the state Attorney General’s Office has until today to respond to one lawsuit filed last week. It seeks to block Governor Rick Snyder from giving Detroit’s Emergency Manager Kevyn Orr authorization to seek Chapter 9 bankruptcy. Many believe that’s where Detroit is headed, including community activist Helen Moore.

“It looks like it’s already bankruptcy the way they’re talking and the way they’re trying to get everybody to take a little portion of the money that’s owed. But really they’re not looking at the facts. The facts are that these people put us in the situation we’re in. They won’t give us our money back from the state,” says Moore.

....
One consultant believes Detroit could still pull out a miracle and create a historic debt restructuring that keeps the city out of bankruptcy; another city official notably said the federal government should bail out the city, though the president has made no indication that’s a possibility. Meanwhile, the Detroit school district got a new emergency financial manager Monday after losing more than 100,000 students and millions of dollars in per-pupil funding since 2000.



Guest 07-16-2013 06:05 PM

Sounds like those public pensions are going bye-bye

Westley 07-16-2013 06:18 PM

I'm taking bk as a given. The question will be what that does to other states/munis and their negotiating leverage with the various banks, unions, and pension funds that are owed money.

Currently dating a teacher (who is young so this is all far away for her) whose parents are both retired teachers (who aren't worried about this at all, which is interesting).

erosewater 07-16-2013 06:28 PM

Quote:

If you want to wade through some unutterably depressing reading on this Monday morning, you should spend some time with the official Detroit Proposal for Creditors. It starts by noting that the city’s per capita income, averaged over its 684,799 residents, is just $15,261 per year. (That’s less than half the income of neighboring Livonia.) Auto insurance alone eats up a good $4,000 of that, for residents with a car.
And then comes the litany of municipal woes: Detroit has the highest violent crime rate of any major US city, at five times the national average; there were 344 murders in 2011, of which just 39 were solved. Right now, the average response time, if you put in an emergency call to the Detroit Police Department, is 58 minutes.
Detroit’s infrastructure is crumbling: 40% of its street lights are out of order, and it has 78,000 abandoned and blighted structures, of which 38,000 are considered dangerous buildings. Those buildings account for a large proportion of the 12,000 fires Detroit has every year. At the moment, firefighters are instructed not to use the hydraulic ladders on their firetrucks unless there is an immediate threat to life, because the ladders have not received safety inspections for years. Detroit also has just 36 ambulances, of which generally no more than 14 are in operation at any given time. And in terms of the city’s IT infrastructure — well, you can probably guess; suffice to say that a recent IRS audit characterized the city’s income tax system as “catastrophic”.
As far as Detroit’s balance sheet is concerned, there is $9 billion of debt, excluding pension liabilities, and also excluding healthcare and life insurance obligations which are calculated at roughly $6 billion. Debt service in 2013 is projected at more than $240 million, or about 22% of total revenues. Worryingly, under the section of the proposal headed “Realization of Value of Assets”, one finds the priceless collection owned by the Detroit Institute of Arts:
http://blogs.reuters.com/felix-salmo...ts-pensioners/

yikes

campbell 07-16-2013 09:28 PM

Quote:

Originally Posted by Westley (Post 6921408)
I'm taking bk as a given. The question will be what that does to other states/munis and their negotiating leverage with the various banks, unions, and pension funds that are owed money.

Currently dating a teacher (who is young so this is all far away for her) whose parents are both retired teachers (who aren't worried about this at all, which is interesting).

....in Detroit?

campbell 07-16-2013 09:29 PM

Quote:

Originally Posted by Dismal Science (Post 6921379)
Sounds like those public pensions are going bye-bye

....where is your avatar?

tommie frazier 07-17-2013 12:47 AM

Quote:

Originally Posted by Westley (Post 6921408)
I'm taking bk as a given. The question will be what that does to other states/munis and their negotiating leverage with the various banks, unions, and pension funds that are owed money.

Currently dating a teacher (who is young so this is all far away for her) whose parents are both retired teachers (who aren't worried about this at all, which is interesting).

nice humblebrag.

Westley 07-17-2013 12:00 PM

Quote:

Originally Posted by campbell (Post 6921711)
....in Detroit?

No, but in an area that is pretty short on pension funding already (has gotten plenty of press), so Detroit's treatment of union pensions is an interesting precedent.

Quote:

Originally Posted by tommie frazier (Post 6921905)
nice humblebrag.

I don't mean ridiculously young or anything (but a fair amount younger than me, so kinda young), just that she's way too young to think about pension funding - certainly not the way her parents do (where they depend on the paycheck). She is cute tho - I can text you a pic if you want.


All times are GMT -4. The time now is 07:34 PM.

Powered by vBulletin®
Copyright ©2000 - 2018, Jelsoft Enterprises Ltd.

Page generated in 0.13827 seconds with 9 queries