Detroit municipal bonds plunge after bankruptcy filing
20 Jul 2013
Attempts by Michigan governor Rick Snyder and Detroit's emergency manager Kevyn Orr to gloss the largest municipal bankruptcy in US history failed to cut any ice with investors who dumped the city's municipal bonds a day following the bankruptcy filing.
Meanwhile, a ruling in state court raised questions over whether the bankruptcy would be able to stand up to court review.
Prices on some Detroit bonds saw steep falls with wider declines in the $3.7 trillion US municipal bond market. Orr was ordered by the state court judge in Michigan capital, Lansing to withdraw the bankruptcy petition since the state law that allowed Snyder to approve the bankruptcy violated the Michigan Constitution.
The governor lacked the power to "diminish or impair pension benefits," ruled by Ingham County Circuit Court judge Rosemarie Aquilina. Acting on behalf of Snyder, Michigan attorney general Bill Schuette, quickly filed an appeal with the state appeals court.
According to his office, motions seeking emergency consideration were expected to be filed later on Friday. Meanwhile, Orr filed a motion with Federal Bankruptcy Court judge Steven Rhodes, who was appointed on Friday to oversee the Detroit case, requesting a hearing as soon as Tuesday on his request to place lawsuits aimed at derailing the city's Chapter 9 proceedings on hold.
The city's bankruptcy, the largest municipal collapse in US history, would be overseen by a 28-year veteran of the bench and writer on Ponzi-scheme law who would be taking on the biggest case of his career.
The case was referred to US bankruptcy judge Steven W Rhodes, 64, by Alice Batchelder, the chief judge for the US Court of Appeals in Cincinnati, on recommendations by lower-court judges in Detroit, according to a court order filed yesterday.
''It is our unanimous and very strong belief that Honorable Steven W Rhodes is the bankruptcy judge best qualified to preside over the city of Detroit Chapter 9 case,'' Phillip Shefferly, chief of the US Bankruptcy Court in Detroit, wrote in a letter filed with the court.
Detroit filed the biggest US municipal bankruptcy on 18 July, a move, which according to Orr, was the only way to deal with a $18 billion debt burden. The city's bid for a turnaround now rests with the judge.
The filing comes following months of negotiations between Orr, who was picked by Republican governor Rick Snyder, and creditors, including pension funds for retired city workers. The funds, dismayed by the filing, are battling to get the bankruptcy rescinded.
