[QODLink]
Americas

Detroit eligible for bankruptcy protection

A federal judge ruled that the US city of Detroit is eligible for bankruptcy protection allowing creditor negotiations.

Last updated: 04 Dec 2013 03:17
Email Article
Print Article
Share article
Send Feedback

A federal judge's ruling that Detroit is eligible for bankruptcy protection offers municipal bond investors a dose of clarity that could be welcome news at the end of a rough year for the US municipal debt market.

If Tuesday's ruling is upheld by an appeals court, it will allow the insolvent Michigan city to push ahead with creditor negotiations over how to restructure debt, which the US federal judge said includes public pension liabilities.

Retail investors might view the Detroit ruling as another frightful headline in a year when the value of their municipal portfolios declined.

Nonetheless, some portfolio managers and analysts saw approval of the bankruptcy filing as a positive development that will eventually provide more certainty about a host of unresolved questions, in particular how various kinds of municipal debt and liabilities are treated in bankruptcy.

"If it had been dismissed I think there would have been a lot of chaos," said James Colby, chief municipal strategist at
Van Eck Global.

"There is a structure in place," he said. "That's a better result than the alternative."

The ruling can also be seen as a signal to creditors - in particular public sector labour unions and pension funds - and Detroit's emergency manager Kevyn Orr that they need to go back to the negotiating table, according to Dan Heckman, senior fixed-income strategist at US Bank Wealth Management.

"The market can take some bit of positive out of this," he said.

Negative headlines

He also noted that while retail investors remain leery in the wake of negative headlines, they should take heed that
Illinois finally appears to be nearing a deal to reform it's pension funds, which comprise the worst-funded state retirement
system in the country.

"Today was a ruling that was widely expected by the market, but it's going to take a while to digest exactly what it means," said Peter Hayes, head of the municipal bonds group within BlackRock Fundamental Fixed Income.

317

Source:
Reuters
Email Article
Print Article
Share article
Send Feedback
Featured on Al Jazeera
'Justice for All' demonstrations swell across the US over the deaths of African Americans in police encounters.
Six former Guantanamo detainees are now free in Uruguay with some hailing the decision to grant them asylum.
Disproportionately high number of Aboriginal people in prison highlights inequality and marginalisation, critics say.
Nearly half of Canadians have suffered inappropriate advances on the job - and the political arena is no exception.
Featured
Women's rights activists are demanding change after Hanna Lalango, 16, was gang-raped on a bus and left for dead.
Buried in Sweden's northern forest, Sorsele has welcomed many unaccompanied kids who help stabilise a town exodus.
A look at the changing face of North Korea, three years after the death of 'Dear Leader'.
While some fear a Muslim backlash after café killings, solidarity instead appears to be the order of the day.
Victims spared by the deadly disease are reporting blindness and other unexpected post-Ebola health issues.