(Repeat for additional subscribers)
July 14 (The following statement was released by the rating agency)
Detroit's settlement with its limited tax
general obligation (LTGO) bondholders is in line with Fitch Rating's
The settlement would repay the LTGO bondholders without a lien on state aid 34
cents on the dollar. That exceeds earlier offers of 10-20%. A previous
settlement agreement provides for ULTGO bondholder recovery of 74 cents on the
dollar and includes a clause requiring LTGO bondholders (and other classes of
impaired unsecured creditors) to receive lower recovery. The city has $164
million of LTGOs without a lien on state aid and $379 million of LTGOs with a
state aid lien. A court will begin hearing the plan of confirmation on August
Detroit's treatment of LTGO and other bondholders strains the boundaries of what
most creditors would have expected to be entitled to in a bankruptcy.
Fitch expects situations like Detroit's to continue to be rare as few
governments are as severely stressed as and there is a long-demonstrated
willingness of most municipal governments to avoid default and bankruptcy.
Also, the nation's slow economic recovery has begun to lessen the financial
stress on many other issuers.