The bankruptcy of Detroit has reset the rules for municipal investors when assessing credit risk. In little under a year the city has blown the assumptions most bondholders would have adhered to over many decades when it comes to recovery given default. Kevyn Orr, the emergency financial manager for the city has played a far tougher game with institutional investors than they have been used to in previous bankruptcies and for the most part he has been successful. In the latest development, the city has reached an agreement with its public sector retiree's which is a substantial PR win. You can read the story here.
http://www.bloomberg.com/news/2014-04-26/detroit-retirees-reach-tentative-agreement-over-pensions.html
While the city could come out of bankruptcy later this year, the real legacy of the Detroit bankruptcy will be the effects it has on other large issuers struggling under enormous debt piles and increasing retirement costs. Watch this space, the bad news is not going to stop here.
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