Net Net: Promoting innovation and managing change
Net Net: Promoting innovation and managing change

Detroit's bankruptcy gain may be others' pain

Detroit-Puerto Rico parallels

The city of Detroit looks to emerge as at least a survivor if not a winner from its bankruptcy, with bondholders and future municipal borrowers the biggest losers.

That's the picture that has emerged from the troubled Michigan city's struggle to escape from its onerous debt load.

A restructuring plan Detroit filed to escape bankruptcy would impose haircuts of 80 percent or more to bondholders and, according to some analysts, provide a "precedent setting" template for future municipalities that face the same type of fiscal problems.

"Overall, the city's bankruptcy plan is more punitive to bondholders than other creditors," George Rusnak, national director of fixed income at Wells Fargo, wrote in an analysis of the Detroit plan submitted Feb. 21. "This could lead to higher borrowing costs for local governments, particularly in Michigan."

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