19 Jul 2013
Will Detroit bankruptcy have widespread effects in the U.S.?
FXstreet.com (Barcelona) - After news hit the wires over Detroit filing for bankruptcy, some investors are wondering about the chances of contagion spreading to other cities in the U.S.
Michigan Governor Rick Snyder said he had given the green light to a request from the bankruptcy lawyer Orr to file for Chapter 9 bankruptcy protection, with Reuters citing Snyder as saying, "Detroit simply cannot raise enough revenue to meet its current obligations, and that is a situation that is only projected to get worse absent a bankruptcy filing."
As reported by ADP: "Some are concerned that a bankrupt Detroit will cause businesses large and small to reconsider their operations in the city. But General Motors, which filed and emerged from a Chapter 11 bankruptcy, does not anticipate any impact to its daily operations, the automaker said Thursday in a statement."
General Motors said: "GM is proud to call Detroit home and today's bankruptcy declaration is a day that we and others hoped would not come," the statement said. "We believe, however, that today also can mark a clean start for the city.
Cited by Euromoney, Morgan Stanley’s head muni strategist, Michael Zezas, said: "While many localities are experiencing similar stresses to Detroit, it is to a much lesser magnitude. The degree of debt burden and operating leverage in Detroit is an outlier both in terms of absolute level and its growth over the past decade."
However, there should be caution in the marketplace, as CreditSights Analysts suspect that if Detroit files for bankruptcy, it may lead to a cascade of more municipalities to file for bankruptcy too.
According to Analysts at CreditSights cited by Euromoney: "The reality here is that cities and municipalities cannot be run effectively without access to bond markets, and a muni that defaults and impairs its creditors will have little market access for a sustained period of time. That in itself is the major deterrent to more widespread use of this part of the bankruptcy code."
Michigan Governor Rick Snyder said he had given the green light to a request from the bankruptcy lawyer Orr to file for Chapter 9 bankruptcy protection, with Reuters citing Snyder as saying, "Detroit simply cannot raise enough revenue to meet its current obligations, and that is a situation that is only projected to get worse absent a bankruptcy filing."
As reported by ADP: "Some are concerned that a bankrupt Detroit will cause businesses large and small to reconsider their operations in the city. But General Motors, which filed and emerged from a Chapter 11 bankruptcy, does not anticipate any impact to its daily operations, the automaker said Thursday in a statement."
General Motors said: "GM is proud to call Detroit home and today's bankruptcy declaration is a day that we and others hoped would not come," the statement said. "We believe, however, that today also can mark a clean start for the city.
Cited by Euromoney, Morgan Stanley’s head muni strategist, Michael Zezas, said: "While many localities are experiencing similar stresses to Detroit, it is to a much lesser magnitude. The degree of debt burden and operating leverage in Detroit is an outlier both in terms of absolute level and its growth over the past decade."
However, there should be caution in the marketplace, as CreditSights Analysts suspect that if Detroit files for bankruptcy, it may lead to a cascade of more municipalities to file for bankruptcy too.
According to Analysts at CreditSights cited by Euromoney: "The reality here is that cities and municipalities cannot be run effectively without access to bond markets, and a muni that defaults and impairs its creditors will have little market access for a sustained period of time. That in itself is the major deterrent to more widespread use of this part of the bankruptcy code."