NEW YORK (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.
TOM METZOLD, CO-DIRECTOR OF MUNICIPAL INVESTMENTS AT EATON VANCE MANAGEMENT:
"More than anything, it's actually a relief, because they can now get negotiations done and validated under the auspices of a court."
CHRIS MIER, CHIEF MUNICIPAL STRATEGIST, LOOP CAPITAL:
"I don't think this an event that has a impact on the overall market. It is very well anticipated, I don't think anybody was caught by surprise here.
"I don't (think it could be a precedent) and the reason is it is a third standard deviation event, it is so incredibly unusual for a city of that size to go into a sixty-year tailspin and ultimately arrive at a point where it has to file bankruptcy that I don't expect it to ever be replicated.
"Detroit was the fourth largest city in the country for all of the 1920s, 30s and 40s, and now they have lost more than half of their population. I looked at the list of the top 25 cities now and I can't think of one that is even close to that kind of situation."
ROBERT GORDON, A CLARK HILL ATTORNEY REPRESENTING THE RETIREMENT SYSTEMS OF THE CITY OF DETROIT:
"At a meeting with creditors on July 11, Orr said that the mere filing of a Chapter 9 petition doesn't preclude parties from continuing negotiations thereafter.
"This position appears to ignore the bankruptcy's code requirement that a municipality engage in robust, good-faith negotiations before seeking Chapter 9 relief. While the Retirement Systems look forward to such negotiations, these have not yet occurred."
DAN HECKMAN, SENIOR FIXED INCOME STRATEGIST FOR U.S. BANK WEALTH MANAGEMENT:
"To us, it doesn't come as any kind of shock. We believe that there was very limited flexibility for the city other than to file for bankruptcy. It was clear probably several weeks ago that many of the creditors were not willing to accept the severe and dramatic cuts."
"If there's any negative impact on the muni market it will be localized, whether it's Detroit or weaker credits within Michigan."
"We don't think that this proves there's a systematic problem in the muni market itself. Fundamentals have been improving.
"You don't throw the baby out with the bathwater in this market just because Detroit filed for bankruptcy. I think that would be a major mistake for investors."
AMY BRUNDAGE, WHITE HOUSE SPOKESWOMAN:
"While leaders on the ground in Michigan and the city's creditors understand that they must find a solution to Detroit's serious financial challenge, we remain committed to continuing our strong partnership with Detroit as it works to recover and revitalize and maintain its status as one of America's great cities.
JACK ABLIN, CHIEF INVESTMENT OFFICER, BMO PRIVATE BANK IN CHICAGO:
"It's not a huge surprise but now the question is how they will move forward and this could be kind of a precedent for other municipalities. Anyone concerned about some other cities like Chicago, cities in California, what this could do is accelerate a trend where states begin to withdraw their support for cities in an effort sure up their finances and we could potentially see more fillings, not on the same scale of Detroit, but certainly some other ones coming out of the woodwork.
"To me the muni market is kind of like real estate, there are thousands of issues and they are all pretty issue specific so it hasn't really tarnished my view of munis collectively.
RICHARD LARKIN, DIRECTOR OF CREDIT ANALYSIS AT HJ SIMS:
"I've said it before: I think bankruptcy was the original goal of Emergency Manager Kevin Orr from before the day he was hired.
"This bankruptcy isn't pre-packaged; it's premeditated.
"I have been projecting that Detroit would go in bankruptcy since January 2011 so I am not surprised if they file for bankruptcy because I saw this coming but I am surprised by the lack of participation by the state of Michigan in trying to solve its problems.
"Detroit getting into trouble? Not a surprise. The State of Michigan not coming to help? It is a big surprise, and I think I am not the only one to say that. In the past Michigan had a good reputation of a state helping out its localities when they were in difficulties. This time it seems they are washing their hands out of that and investors will remember that."
"Do I expect a major impact sending shockwaves and seeing prices falling and yields spiking? No I do not because most people had expected it and (a bankruptcy) is already priced in the market, but I could be wrong."
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 will 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 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 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, a unit of Thomson Reuters.
The taxable June 15 2035 bonds traded at $38.5 with a yield of 16 percent. That compares with $76 and a yield of 8.39 percent in mid May.
(Americas Economics and Markets Desk; +1-646 223-6300)
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