Perspectives Blog

Making sense of Detroit’s bankruptcy filing

Ty Schoback, Senior Municipal Analyst | July 25, 2013

We believe Detroit’s bankruptcy filing does not represent a material threat to the broader municipal market. Any precedent set from Detroit’s Chapter 9 filing will be of limited value beyond Michigan’s borders. We continue to believe that municipal bankruptcies will be rare events. Last week Detroit filed the largest municipal bankruptcy in U.S. history. Detroit’s decades-long fiscal and economic decline has been well documented, and the filin…

Detroit’s collateral damage

Ty Schoback, Senior Municipal Analyst | October 24, 2013

…ts. On October 1, the City of Detroit defaulted on its Unlimited Tax General Obligation (UTGO) Bonds. While the default was widely anticipated, it presents a good opportunity to follow up on our initial response to Detroit’s bankruptcy filing, and review any fallout the filing has had on the municipal market. Since Detroit filed for Chapter 9 bankruptcy on July 19, other local governments in Michigan have been hesitant to issue new bonds and pai…

Fear is not a strategy

James Dearborn, Head of Municipal Bonds | November 18, 2013

…know how exposed their portfolios may be. Bankrupt Detroit Detroit’s fiscal erosion has been slow and painful. Decades of financial and economic decline, exacerbated by dysfunctional politics, resulted in the city’s Chapter 9 bankruptcy filing in July. With around 100,000 creditors, including the city’s various pension funds, Detroit is the largest muni bankruptcy in U.S. history. While the filing surprised few muni market participants, news of t…

Municipal market ghosts of past, present and yet to come

James Dearborn, Head of Municipal Bonds | December 9, 2013

…f debate about large unfunded pension liabilities changed dramatically. It was an odd coincidence that Illinois legislators finally decide to confront a large and growing unfunded pension liability on the same day that a U.S. bankruptcy court judge in Detroit ruled that the state constitution provides no protection for pension benefits of the city’s current and future retirees. These two seemingly independent events will have long lasting implica…

A primer on preferred securities

Carl Pappo, Head of Core Fixed Income | March 10, 2014

…es carry attributes of both debt and equity securities. Preferred securities rank higher in the capital structure relative to common equity, as they have a priority claim on dividend payments and a higher claim on assets in a bankruptcy. Preferred securities generally offer higher yields than senior unsecured debt from the same issuer, reflecting their junior position in the capital structure, as well as the issuer’s ability to suspend or defer p…

New taxes require strategies to maximize after-tax return

Abram Claude, Vice President, Columbia Management Learning Center | March 18, 2014

…erral option for owners, key employees and professional partners if their corporate structure will not support a non-qualified deferred compensation (NQDC) plan. In addition, as a qualified plan, it provides both judgment and bankruptcy protection that an NQDC does not. Investors and financial advisors can take proactive steps to maximize after-tax returns in a higher tax environment where “what you keep” is an important investment concern. Learn…

Puerto Rico’s turbulent ride

Michael Taylor, Senior Municipal Analyst | September 26, 2013

…arranted — with the Commonwealth itself on the brink of delving into speculative-grade territory (Baa3/BBB-/BBB-). Puerto Rico Electric Power Authority’s $673 million August revenue bond issuance, marketed following Detroit’s bankruptcy filing, priced with its longest dated bonds yielding 7.12%. With yields rising across the island in recent weeks to distressed levels, the GDB has reduced previously-announced financing plans for the rest of 2013…