Something to Keep an Eye On

From Investment News

“Why muni bondholders may take it in the teeth after all”

The outcome of several bankruptcy proceedings, however, could change the default landscape dramatically, said David Dubrow, a bankruptcy lawyer at Arent Fox LLP.

Jefferson County, the largest county in Alabama, filed for Chapter 9 bankruptcy protection in November and is currently arguing in court for the right to cut payments on more than $3 billion in bonds issued to fund its sewer system. Harrisburg, Pa., filed a month earlier because of massive debts from an incinerator project. Stockton, Calif., may soon become the largest city to declare bankruptcy in U.S. history. It currently is in a 60-day mediation period.

If these issuers come out of their situations in better condition, it could encourage other stressed municipalities to follow suit. “If some of these entities are successful in restructuring collective bargaining agreements and paring their debt, it may become more acceptable for others to try — and we’ll see more bankruptcy filings,” Mr. Dubrow said.

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