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Thursday, July 18, 2013

Detroit Files Largest Municipal Bankruptcy in U.S. History

At WSJ, "Record Bankruptcy for Detroit: Motor City 'Is Broke,' Governor Says, as It Seeks to Restructure $18 Billion in Debt":

DETROIT—The city of Detroit filed for federal bankruptcy protection Thursday after decades of decline, a new low for a city that once defined industrial America's might but was hollowed out by the flight of residents and businesses to the suburbs.

The filing by the automobile capital and onetime music powerhouse—which has liabilities of more than $18 billion—is the country's largest-ever municipal bankruptcy case.

The move to restructure the debt is bound to set off months, if not years, of legal wrangling, asset sales and cuts to benefits for Detroit workers and retirees, including 20,000 on city pensions. Owners of the city's bonds are expected to battle with retirees and others for pieces of the city's diminished wealth.

Detroit is no stranger to bankruptcy after two of its most prominent companies—General Motors Co. GM +1.32% and Chrysler Group LLC—entered and quickly exited Chapter 11 bankruptcy in 2009, thanks to an $80 billion federal bailout.

But without a similar rescue—which the White House has indicated isn't forthcoming—Thursday's filing is fundamentally different and potentially much more treacherous for the city, officials and experts said. It casts the nation's 18th largest city into largely uncharted legal waters because few municipalities—and none this size—have undergone financial reorganization.

"I am terrified, and I am nervous," said Vaughn Derderian, the 36-year-old manager of the Anchor Bar, a fixture in downtown Detroit. "It is like being on a speeding freight train and you have no idea where it's going to go."
Yeah, well Detroit's lacking the big union clout, apparently.

See Walter Russell Mead, "Obama to Detroit: Drop Dead" (at Memeorandum).

And at Twitchy, "Motown Memory Lane: Obama ‘wasn’t going to let Detroit go bankrupt’."

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