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Capital Markets

Detroit files for municipal bankruptcy

The bid to treat general obligation holders and pension funds as pari passu in what is the largest bankruptcy in municipal bond market history sets the city up for a prolonged legal fight.

Detroit filed for chapter 9 bankruptcy on Thursday, making it the largest city in the US to do so.


The deteriorating financial situation has been widely publicized, but the city’s emergency manager Kevyn Orr also cited new developments in his decision.


These include the discovery of additional obligations that had been left out of the city’s calculation of its debt, bringing the total from $14 billion to between $18 billion to $20 billion.


Ultimately, an agreement could not be reached between Orr and the city’s creditors. A key point of contention was Orr’s decision to treat general obligation holders and pension funds on an equal footing, angering both groups, which had been expecting preferential terms.


Though attorneys for the pension funds attempted to obtain a restraining order to prevent the filing, they were unsuccessful – the long and drawn-out process has begun.


For more information, see Detroit: the exception or the rule?

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