The odds of an out-of-court settlement between Detroit's emergency manager and its creditors are "extremely slim," as the WSJ reports that the troubled city's D-Day draws ever closer to becoming the largest muni default in US history. The last straw on Detroit's camel's back of bankruptcy was following discussions last week between Kevyn Orr (Detroit's emergency manager) and the White House as any hope of a federal bailout to evert bankruptcy fizzled. Folowing Detroit's default in June - demonstrating its insolvency - and its "negotiations in full faith" with creditors set the scene for a pending day in court. The current plan (for now rejected by creditors) means a 90% loss for muni-worker retirees, 81% loss for unsecured creditors, and a 75% loss for secured creditors leaving a "free fall" bankruptcy filing - one without a clear plan or much agreement beforehand with creditors - the most likely outcome "because there is no other way out of here if we don't reach consensus."
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Union workers can always apply for "Obamacare" health insurance that they supported so wholeheartedly. And of course there is always "Medicaid". But not to worry, Ob will take care of them with more printed money.
ReplyDeleteAs ye sow, so shall ye reap.
ReplyDeleteWhen GM went bankrupt, the unions got all the assets. As a GM bondholder (senior debt), I was wiped out. This was completely illegal and atypical of a bankruptcy. But I guess since these public workers aren't in the right union, they don't get special favors.
ReplyDeleteIt doesn't seem fair that pensioners should see a 90% loss. If you're already in retirement, you're completely screwed.
This goes to show that ANYBODY who expects to get paid a pension controlled by an outside group is prone to getting screwed over. Cash out if you can. All these pensions are way underfunded and they rely on unrealistic assumptions on returns. So when the Fed depresses interest rates, your pension is subsidizing the corrupt system.
End of the message - nobody cares about your own well being more than you do. Control your own retirement plans.
To 12:41 Posting
ReplyDeleteI would not be so quick to count the pensioners out. You see they tried to block the filing of Detroit's bankruptcy - but were minutes to late.
The bigger question is this - is the bankruptcy judge going to allow the pensioners - first lien position over the municipal bond holders. If the Court does so - then this will send shock waves out to municipal bond issuers who will inflate interest rates dramatically. Moreover, this will also effect the ability to market municipal bonds as their status will have substantially change - (bond ratings). This is really a big deal in light of what is transpiring with all of the unfunded pension liabilities - particularly Maryland.
1:15-A bankruptcy court's authority is limited where bonds are concerned. It all depends on how the bonds were secured-general obligation or special revenue. Either one doesn't lean toward the pensioners having a good outcome though. Attempting to block the city's filing seems to be more of symbolic effort than anything else.
ReplyDeleteTo 1:15 - It looks as though the Bankrupcy judge reversed Detroit's bankruptcy filing. I just heard on the news that the judge did this last night. I guess this opens up Pandoras box.
ReplyDelete