As somewhat expected – though hoped against by many Detroit union workers – Judge Steven Rhodes appears to have confirmed Detroit is eligible for bankruptcy protection (after pointing out that the city's accounting was accurate and it is indeed insolvent) making this the largest ever muni bankruptcy.
- JUDGE RHODES SAYS HE WILL ALLOW PENSION CUTS IN DETROIT'S BANKRUPTCY
- DETROIT JUDGE: NOTHING SEPARATES PENSIONS FROM OTHER DEBT
The city will now begin working toward its next major move – the submission of a plan to re-adjust its more than $18 billion in debt – including significant haircuts for pension funds (possibly 16c on the dollar recovery) and bondholders. With Detroit as precedent, we can only imagine the torrent of other cities in trouble that will be willing to fold.
He did provide an "out" though:
- RHODES WARNS THE CITY THAT JUST BECAUSE PENSION RIGHTS CAN BE IMPAIRED, DOESN'T MEAN HE WILL APPROVE A PLAN WITH STEEP CUTS
Before the bankruptcy, Orr proposed canceling $3.5 billion in future pension obligations and at least $1.4 billion in unsecured bonds. The debts would be replaced with a $2 billion note paying 1.5 percent interest.
But, of cours,
Detroit must ask “what is necessary to invest to attract business?” Spiotto said in a phone interview. “If you don’t solve the systemic problem, you are just going to repeat it.”
via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/NSYfCS5is_U/story01.htm Tyler Durden