Tuesday’s Dispatches: A collection of bankruptcy readings

Tuesday’s Dispatches: A collection of bankruptcy readings

Journalists and analysts around the country continue to dissect Detroit’s Plan of Adjustment and Disclosure Statement. Here is a collection of articles and posts about what some of the possible ramifications are on issues ranging from the city’s technology systems to pension fund disclosures to bond markets.

Reuters reports that Fitch Ratings finds the plan “hostile” for bond holders. “Fitch expects that this disregard for the rights of bondholders will factor into higher borrowing costs for local issuers, and ultimately for local property taxpayers, in Michigan.” Fitch sold the city $1.45 billion certificates of participation (COPS) for pension payments the 2005 and 2006, the subject of a city lawsuit filed last month.

Technology upgrades for police and better information systems for record keeping across city departments are part of the $150 million provision in Detroit’s Plan of Adjustment. The Detroit Free Press reports the investment could be returned threefold, as explained by Charles Moore, a city restructuring consultant with Conway MacKenzie. “This is better collection practices, improved pricing for fees, permits and licenses, and all of this is enabled by improved technology,” Moore says.

In its “Revenge of the 99 %” article, The Economist collects reactions from the bond markets to Detroit’s Plan of Adjustment and analyzes what it all means. But the author warns against too much sympathy for the bond insurers, who are looking at a mere 20 percent payout under the city’s Plan of Adjustment.  “Another reason not to shed any tears for Detroit’s bondholders—despite their raw deal—is that it was their disastrous restructuring of the city’s pension debt in 2005 that became a key factor in driving the city to bankruptcy,” he writes.

Meanwhile, the Society of Actuaries, a professional association of risk experts, is calling for openness and transparency by Detroit’s pension funds, as reported by The New York Times DealB%k. The group argues for the release of the fair value of pension obligations and estimates of the annual cash outlays needed to cover them. “We think it would be a useful benchmark for plans to have,” said Robert W. Stein, the panel’s chairman, who is both an actuary and a certified public accountant. “We’re optimistic that the information would enable them to better appreciate the future and what it might bring.” Will Detroit’s pension funds change their course of resistance to such disclosure? And what are the implications of the release of such information?

-By WDET’s Sandra Svoboda

@WDETSandra and nextchapter@wdet.org