Historically the use of Chapter 9 bankruptcy by a municipality has been rare and a last resort: Since 1954, virtually all of those municipalities that filed Chapter 9 were small or not major issuers of Bond Debt except for Bridgeport, CT in 1991, Orange County in...
Municipal Bankruptcy
Chapter 9 and Alternatives – Part Three: Competing Interests in Chapter 9 and Bondholders’ Rights
by James Spiotto Chapter 9 is generally viewed as the remedy of last resort for troubled municipalities. If permitted by its state law, a municipality typically does not seek Chapter 9 relief unless it is in extreme financial distress with no obvious solution. Among...
Chapter 9 and Alternatives – Part Two: State Programs to Assist Municipalities in Times of Fiscal Crisis
by James Spiotto As discussed below, over half of states have implemented municipal debt supervision or restructuring mechanisms to aid municipalities. These programs, many of which are identified in the table below and which are described in detail in Municipalities...
Chapter 9 and Alternatives – Part One: Lessons Learned: An Update on the Municipal Bankruptcy Experience
by James Spiotto The state legislatures, in considering how best to assist local governments facing financial challenges or economic distress, may find instructive how other states have addressed these problems and the alternatives and opportunities available in the...
Assessing the Credit Quality of America’s Cities – Part Three: Long-Term Liabilities beyond Pensions
By Richard A. Ciccarone City Financial Challenges Beyond Pensions When Assessing the Credit Quality of America's Cities, pensions aren't the only big long term liability facing America's cities. Add to the list bonded indebtedness, other post-employment benefits...
What Factors Have Helped to Prevent Municipal Defaults and Bankruptcies?
by James Spiotto A. Past market discipline and state and local governments need to borrow: As noted, in the 1800’s and 1900’s, states and local governments in order to fulfill their mandated mission borrowed for needed infrastructure and essential governmental...
What Are the Causes of Municipal Defaults and Bankruptcy?
by James Spiotto A. Traditionally causes of municipal bond defaults in the U.S.A. have been more linked to inability to pay rather than unwillingness to pay or political risks: Economic depression. Non-essential services. Feasibility of projects and municipal...
Understanding Municipal Bankruptcy and Who Can Use Chapter 9?
By James Spiotto What is Chapter 9? Exclusive chapter of the Bankruptcy Code that provides a method for municipalities to adjust debt. Not a tool for elimination of municipal debt but adjustment of debt to what is sustainable and affordable. It is voluntary, a...
How Is Municipal Debt Treated in a Chapter 9 Proceeding? (Priority of Payment)
By James Spiotto A. Types of municipality debt obligations in Chapter 9: There are various types of voluntary municipal debt ranging from bond debt sold to the investing public, debt owed to vendors for goods and services in operation of the municipality to cost of...
Chapter 9 (Municipal Debt Adjustment) Is Unlike Chapter 11 (Corporate Reorganization)
By James Spiotto IN A CHAPTER 9 IN A CHAPTER 11 • Only the municipality can initiate a Chapter 9 if authorized by state law. • The corporation (voluntary) or its creditors (involuntary) can initiate a Chapter 11 case if the corporation is a moneyed entity (not a...