Skip to comments.Emergency manager: Detroit won't pay $2.5B it owes
Posted on 06/16/2013 8:36:00 AM PDT by SeekAndFind
A team led by a state-appointed emergency manager said Friday that Detroit is defaulting on about $2.5 billion in unsecured debt and is asking creditors to take about 10 cents on the dollar of what the city owes them.
Kevyn Orr spent two hours with about 180 bond insurers, pension trustees, union representatives and other creditors in a move to avoid what bankruptcy experts have said would be the largest municipal bankruptcy in U.S. history.
Underfunded pension claims likely would get less than the 10 cents on the dollar.
An assessment of the plan's progress will come in the next 30 days or so.
Orr also announced that Detroit stopped paying on its unsecured debt Friday to "conserve cash" for police, fire and other services in the city of 700,000 people. The debt not being paid includes $39 million owed to a certificate of participation.
"We will not pay that today," Orr told reporters after the meeting with creditors at a hotel at Detroit Metropolitan Airport in Romulus.
More than 42 percent of Detroit's 2013 revenue went to required bond, pension, health care and other payments. If the city continues operating the way it did before Orr arrived, those costs would take up nearly 65 percent of city spending by 2017, Orr's team said.
The team also said the proposal presented Friday is the one shot to permanently fix fiscal problems that have made the city insolvent.
Orr said everyone involved needs to come to grips with Detroit's dire financial situation that has been worsened by years of procrastination and denial. He said his team is prepared for potential lawsuits from creditors not pleased with the arrangements under the plan.
(Excerpt) Read more at cbsnews.com ...
I wonder if anybody has the fantasy that Chicago will pay what it owes, or St Louis, LA, Philly.....
Sorry kids but the only other options are federal bailouts.
wow shocked NOT
And the public employee pension fund managers were given a heads up on this decision weeks ago with just enough time to unload these bonds before today’s announcement.
Bet getting people to invest in new bonds is gonna be impossible.
Maybe I’ll try that with my creditors. “Sorry guys. I’ve decided that even though I owe you the money, I’ve decided I’m not going to pay”. Wonder how that’ll work out for me. LOL! Now, if I was a registered demokkkrat it’d probably be just fine.
So... what happens when Zero asks China to accept ten cents on the dollar in exchange for our Chinese debt?
Just following the lead of Der Dufus.
What sort of imbecile would lend money to Detroit?
Okay how about the city would be required to purchase an insurance policy to insure they can cover their liabilities.
The insurance company could then audit and evaluate the cities current operation and charge a premium based on that evaluation.
It’s the old adage: If I owe you a thousand dollars I can’t pay, I’m screwed. If I owe you a billion dollars and can’t pay, you’re screwed.
Too soon to tell, but this may turn out differently from the GM bailout, with unions and their pension funds taking a good part of the hit.
It would be nice if the emergency manager used the bankruptcy to cancel the union contracts.
Call it a “comprehensive” plan, Kevyn, and it’s all good.
Or maybe declare Motown a ‘creditor-free’ zone?
RE: What sort of imbecile would lend money to Detroit?
Those who think the bond is “safe” because the Feds will come in to bail the city out... WE SHALL SEE...
Then new, smaller communities would incorporate in Wayne County consisting of various parts of the former Detroit. These communities would be viable and could start all over again.
This model could then be used when other cities, such as Philadelphia, collapse.
Where’s that Obama Money????LOL
Sorry kids but the only other options are federal bailouts.
I have no doubt the idea of feral government bail-outs of Democratic [sic] party bankrupt cities will be raised; I have even less doubt the rest of the nation is not going to be willing to pick up the tab for the looters. That idea couldand shouldlead to secession.
I hope the unions invested heavily in that debt. It’d be a win-win!
Why did the Democrats in Detroit keep electing Democrat politicians? Was it because they thought that the Democrat politicians would get the most efficient and effective use out of the taxpayer’s hard-earned dollars? Or did the Democrat voters of Detroit keep electing Democrat politicians because the voters thought the politicians would steal hard-earned tax dollars for them? If this is the case, then that makes the Democrat voters accomplices to the crimes. Treat them like all criminal accomplices. Fine them to pay for the horrible results of their crimes. If they can’t pay, then they lose their vote.
That can already be done - credit default swaps. Unfortunately, though, the exposure through CDS and derivative markets is hundreds of trillions of dollars and no firm on earth could cover the swaps that they back - ironic isn't it?
Detroit Municipal UNSECURED debt - talk about junk bonds!
Given the politics and economy of Detroit, as well as the third-world socialist thinking of the Obama Administration, I couldn’t imagine Detroit’s secured debt as being worth very much either.
The rats elected rats for two reasons -
Racial preferences and the party of free stuff that was going to make the productive pay their fair share - inevitably the productive fled the city.
By the way - 2.5B is insignificant when you kick around the money everyone owes thanks to Uncle Sugar. The most important lesson of Detroit is how it illustrates the inevitable ending for our entire nation based on big government redistribution schemes.
The inevitable result of liberalism.
The difference is that you have something worth repossessing. Who would want what's left of Detroit?
Who would buy them and at what price?
Obama rescue bailout in 3....2....1.....
Credit default swaps are not legit exactly for the that reason. I am talking about a legitimate insurance company with resources to cover it's policies and the expertise to underwrite a city and evaluate their operations on an ongoing basis.
Yes that is my question too. Anyone lending money to Detroit
certainly in the last 10-15 years should have been aware of the risks.
If true, that would be criminal, and every buyer of bonds dumped under those circumstances would have a cause of action. Per my admittedly sketchy layman’s understanding. So ... has that been confirmed?
I would love to see that. Of course, certain legal requirements like ownership of the underlying security would present a bit of a problem in the traditional insurance context. It would be nice to see a town or a state buck the trend and find a way to legitimately make this happen (Texas, are you listening?). Other than on a limited basis, could you imagine the capital reserves that would be required for a wholesale across the board coverage? Even on a traditional reserve basis, the reserves required could exceed $600 trillion. The scale of debt at all levels is staggering, really.
>>Sorry kids but the only other options are federal bailouts...
It needs to be explicitly said that this would just represent more kicking the can down the road.
No doubt places like Detroit will get rescue bailouts, but only after Obama takes the opportunity to stick it to private investors and any politically un-connected financial firms. Think GM bailout.
(1) In Cyprus, the failed bank's creditors were only required to take an 80% haircut. Detroit is asking creditors to take a 90% haircut. This will not fly. The litigation will be monumental and shake all of government to the core.
(2) The credit/bond rating agencies have changed the standard by which pension obligations must be accounted for. A huge number of state, local and unions (and corporations) are going to find themselves so far underwater that there is going to be a run on the Pension Benefit Guaranty Corp. That will be the bailout of all bailouts.
“...The pension changes from Moodys, and separately the Governmental Accounting Standards Board, scheduled for this month, could result in Los Angeles, San Francisco, San Jose, Azusa and Inglewood joining fiscally troubled Stockton and San Bernardino, among others, as severe credit risks. It's all largely due to soaring employee retirement costs...”
Detroit has plenty of assets. Sell them off, pay the creditors.
Bailouts are exactly what many cities (and their creditors) expect in their future.
The Detroit situation sucks but what is coming to the rest of the nation will be far worse.
If I was a creditor of Detroit I wouldn’t let them buy one damned thing without cash.Its cash or go fry ice.
Detroit has proven it can’t manage its own financial affairs.
You're right. Even factoring in the presence of a watchdog insurance company keeping reckless politicians in check, the vagaries of economies or unexpected calamities would make insurance too expensive.
But we still end up having to pay that price under the current system, so there must be a way.
They failed. Put them in receivership & auction off any assets to viable munipalities. A bail-out is good money after bad management.
But progressive thinking is to reward bad behavior, so they will be propped up and bleed red ink for a few more years.
it is going to be interesting
QE is taking care of that.
The best thing the creditors can do is to stop doing business with a deadbeat. When they can no longer hire any contractors they might get a clue.
That is easy, we have to inflate the currency to make a dollar then worth a dime now.
Its called bankruptcy and happens everyday in the US. If there is no money, they can’t pay and that is not going to change.
This is simply a desperate attempt to avoid formal bankruptcy in an effort to preserve union contracts. In a formal bankruptcy, union contracts could be abrogated, and the bankruptcy trustees would be in a a very awkward spot if they chose to screw everyone BUT the unions.
The unsecured creditors should put Detroit into an involuntary bankruptcy and have a court appointed administrator assemble a creditors committee to administer the city’s assets and revenue. The first step would be to send the City council home. Step two a full audit to examine revenues and root out corruption
As they say in England, no worries, mate!
The Fed will just print the money. To maintain stability in the markets, of course. And, yeah, food will go up another 5% and gas prices will rise but they're not counted in the CPI [too volatile] so the effect will be nil.