Appearing Sunday on CBS’ “Face the Nation,” Snyder told host Bob Schieffer that the state cannot bail out
“And realistically, if you step back, if you were lending to the city of
Unlimited tax general obligation municipal bonds (ULTGO) have long been considered good investments because of their tax-free status and the fact that they are secured by a jurisdiction’s pledge to raise taxes as high as necessary to pay off investors.
However, Kevyn Orr, hired in March as emergency manager to restructure Detroit’s $18.5 billion debt (half of which is for pension obligations), has proposed paying General Obligation bond holders less than 20 cents on the dollar.
Credit rating agencies Fitch, Moody’s and Standard and Poor’s have all said they will review their recommendations if the bankruptcy judge allows Detroit to treat municipal bondholders the same as unsecured creditors.
In a statement released last Friday, Fitch noted that “there has been little precedent for the classification of ULTGOs as general unsecured debt and the bankruptcy court’s treatment of this issue will inform future credit analysis of ULTGO.”
So the fallout from the
“If the unlimited tax GO bonds are not paid in full, and instead treated similarly to creditors that we feel have less security, such as pensions and healthcare benefits, then we have to re-evaluate that tax pledge.” Fitch analyst Amy Laskey told the Financial Times.