Thursday, January 20, 2011

"Vallejo Plan Would Give Unsecured Creditors 5 to 20 Cents on the Dollar"


[Vallejo's] plan to exit bankruptcy outlines the reorganization of debt the city owes its largest creditors, Union Bank and National Public Finance Guarantee. It also sets aside a pool of $6 million to pay unsecured creditors about 5% to 20% of their claims over two years...

“The city regrets that it cannot pay a higher percentage,” Vallejo officials said in the court filings. “The city lacks the revenues to do so while maintaining an adequate level of municipal services, such as the provision of fire and police protection and the repairing of the city’s streets.”
If it's being paid over two years then the recoveries are actually less than stated.

Probably the real story is the cutbacks that municipalities will have to make. Here are Rosie's thoughts from today:
No doubt there are major financial problems among state and local governments but the sector has cheapened up radically in recent weeks and months. We are more worried about the economic impact from the spending cuts and tax hikes than we are about a wave of defaults, which could well be overblown. But the economic damage is going to be severe and catch the bullish economics community by surprise this year.
Look at what happened when Illinois raised taxes. Their CDS spreads came way down. The credit markets will love any tax increases or layoffs by cities and states.


getyourselfconnected said...

Stopped by on Stagflationary Mark's link. Godd work here and a great read. Thanks.

getyourselfconnected said...

Good work, I cannot spell.

Eric said...

NYT: A Path Is Sought for States to Escape Their Debt Burdens

CP said...

The "state bankruptcy" talk is really odd, it reflects a complete lack of understanding both states and bankruptcy.

Bankruptcy exists to protect debtors from having their property seized.

No one can seize the property of a state. States are sovereign.

States can, and have, tell creditors to pound sand.