NEW YORK, July 18 (Reuters) - The city of Detroit filed for bankruptcy on Thursday, making it the largest-ever municipal bankruptcy in U.S. history and marking a new low for a city that was the cradle of the U.S. automotive industry. In a letter accompanying the filing, Michigan’s Governor Rick Snyder said he had approved a request from Detroit Emergency Manager Kevyn Orr to file for Chapter 9 bankruptcy protection saying “it is clear that the financial emergency in Detroit cannot be successfully addressed outside of such a filing, and it is the only reasonable alternative that is available.”The city of Detroit on Thursday filed the biggest municipal bankruptcy in U.S. history after Michigan Governor Rick Snyder approved a recommendation from the city’s emergency manager, according to documents filed in U.S. federal court in Michigan.
ROBERT AMODEO, PORTFOLIO MANAGER AT WESTERN ASSET IN NEW YORK:
”You’d like to hope that it is isolated. This should not come as a surprise to the market place. You’d like to think that the prices already reflect this distress but we’ll see tomorrow. It’s a little too late to see.
“We wil see tomorrow morning. It is an important case in terms of treatment of different kinds of debt, secured vs unsecured, pension obligations and so forth. It’s a very complex landscape and it’s one that’s going to be watched very closely by municipal investors.”
RICHARD CICCARONE, MANAGING DIRECTOR OF MCDONNELL INVESTMENT MANAGEMENT:
Despite recent statements by emergency manager Kevyn Orr that he hoped to resolve any bankruptcy filing in less than a year, “it’s going to be a long, drawn out process”.
“I just don’t see that happening. They’re dealing with very difficult issues in which there’s not very much court precedent for a major city in this arena.”
”Detroit is not reflective of all cities in the country.
“This one was anticipated as a possibility for years, even before the credit crisis occurred. It was only the political support of the state which was helping keep them out [of bankruptcy] earlier. They were on life support. I think Michigan had a difficult decision to make here. They had to deal with an issue in which you have such a dramatic decline in your population base That’s a humongous challenge.”
(On the market) “It does provide some trembling and consternation.”
”The biggest U.S. municipal bankruptcy ever filed comes at a time when the market for municipal bonds is already shaky. Outflows from municipal bond funds have been high.
“When you put a credit event together with outflows, you increase the initial risk [of a negative market reaction] until it works itself out. Everybody will go through a sorting out process.”
“The real tremble to the bond market would be if the courts undo the secured general obligation.”
MARKET REACTION: On the municipal bond market, Detroit bonds and notes traded on Thursday at record high yields, said Dominic Vonella at Municipal Market Data.
The taxable June 15 2035 bonds traded at 38.5 percent with a yield of 16 percent. That compares with a trade at 76 and a yield of 8.39 percent in mid May.