Detroit fire sale: The best way to get out of debt?

How will Detroit pay back its debt?

Detroit has worn many titles. Motor City. Motown. Now it's adding another: the largest municipal bankruptcy filing in U.S. history. Detroit's emergency manager Kevyn Orr wasn't able to convince enough stakeholders to restructure the city's nearly $20 billion debt. So what's next?

Now that Detroit has filed for Chapter 9 it gets:

"Breathing room," according to Paul Maco, a partner at law firm Bracewell & Giuliani who specializes in municipal securities. "It gives them a chance to work out over an extended period of time problems that may be immediately confronting them."

He says municipal bankruptcies often pit bondholders, investors who buy a city's debt, against pensioners, retired public employees. Both were promised payments. And bondholders usually come out ahead.
Pulitzer Prize-winning journalist Charlie LeDuff was raised in Detroit. He left it, wrote for the New York Times, and then he went back home. Marketplace spoke with LeDuff about his book, "Detroit: An American Autopsy," the city itself and the journalistic tendency to engage in "ruin porn." Read and listen to that interview now.
But bankruptcy expert Jim Spiotto says filing for Chapter 9  can seriously damage a city's credit rating in the bond market.

"What is the future impact on the municipality and its ability to borrow? Any municipality of size needs on a regular basis access to the municipal market at a low cost," he says.

There's also been a lot of talk about whether Detroit will have to sell off assets like an airport, Belle Isle Park, or a prized art collection. Maybe, but not because a judge so orders. Unlike corporate bankruptcy, the municipality makes that call.

To see some of the "Numbers" from Detroit, check out Kai's final note.

This story has been updated to include the name of Belle Isle Park.

About the author

Kate Davidson is a regular contributor to Marketplace.

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