Michigan Governor Rick Snyder (R) said that investors holding $1.5 billion of bonds from Detroit’s distressed schools would be fully repaid under a plan by the state to split the system in two, Bloomberg News reported on Friday. The proposal, which passed the state Senate last month, establishes a new district responsible for educating students and running the schools, while the existing district’s only task is to collect taxes and repay all obligations except pensions. Moody’s Investors Service said in a report on Thursday that while the plan could be “a significantly positive event for bondholders,” the split doesn’t mean a default or bankruptcy is off the table. Detroit’s school district is reeling from the same population decline that pushed the city into the largest U.S. municipal bankruptcy. The system, which has seen enrollment drop by nearly 100,000 students in the past decade, is overseen by Emergency Manager Steven Rhodes, the judge in Detroit’s chapter 9 proceedings. Moody’s gives it an issuer rating of Caa1, the fifth-lowest rank. Snyder last week signed an emergency funding measure for the schools, which would send $48.7 million to the district to keep doors open through the end of the school year. The Senate passed a $720 million bill that would break the system into two last month. Read more.
Can a financially distressed government unit restructure its pension obligations over retiree objections? Prof. Amy Monahan of the University of Minnesota Law School joins ABI Resident Scholar Melissa Jacoby to explore this difficult topic on an ABI Podcast.
The impact of public pension debt on the economy will be the focus of a special "Eye on Bankruptcy" panel before a live audience on April 16 at ABI's Annual Spring Meeting in Washington, D.C. Register today!
