Detroit’s Chapter 9 Bankruptcy Is Good News For Muni Bondholders

Detroit was ruled to be eligible for Chapter 9 bankruptcy protection on Tuesday, and Judge Steven Rhodes took the unexpected step of ruling that pension rights are contractual and “not entitled to heightened protection in bankruptcy,” meaning that pensions will likely take a cut just like the city’s bondholders and other creditors. Some analysts have suggested that this ruling could set of a rash of municipal bankruptcies as cities struggle to get out from under their pensions, but Mark Palmer at BTIG says the argument is based on a misunderstanding of Chapter 9 bankruptcy. In order for a city to…