SNL Financial Releases Analysis of Insurers Holdings of Detroit Municipal Bonds

(PRWEB) July 24, 2013

According to an SNL Financial report released today, Detroit's fiscal struggles have been no secret for many years as it has suffered a flight of its tax base and, after the recession, a rapidly rising unemployment rate.

Nonetheless, several insurers maintained holdings of Detroit municipal bonds as of the end of 2012, SNL data show. Filings by these insurers indicate these bonds represent relatively small percentages of their investment portfolios, with some insurers noting that much of their municipal portfolios are insured. Rating agencies have downgraded many Detroit bonds to junk status, as they consider it likely that the terms of the bonds will be revised to the detriment of creditors as the restructuring process unfolds.

Michigan Gov. Rick Snyder named an emergency manager, Kevyn Orr, on March 14 in an effort to restructure the city's debt obligations and avoid bankruptcy. Orr, a Jones Day lawyer who once represented Chrysler amid its turnaround, delivered a shock to creditors June 14, when he released a restructuring proposal that contradicts the typical priority of debt that municipalities pay. It places its general obligation unlimited tax debt on par with pension obligation certificates, unfunded pension liabilities and accrued retiree health care benefits. This upends the convention that general obligation bonds are among the safest kinds of debt.

"The treatment of all of those types of debt is really a sharp contrast from the traditional risk assumptions that people associate with different types of legal securities," Morningstar analyst Elizabeth Foos told SNL. "We feel if that's upheld, if GOULT bondholders are treated similarly through this process of repayment as the pension liabilities, or retiree health care, that could really set a precedent."
Keep reading the full report and analysis here: http://www.snl.com/InteractiveX/Article.aspx?cdid=A-18397940-12326

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