The outcome of the Detroit bankruptcy will not affect Standard & Poor's Ratings Services' recovery assumptions for city general obligation debt because it believes that there was no precedent set by the recent Detroit outcome that is widely applicable to GO debt.
Although what has transpired in Detroit could lead to more distressed municipal issuers eschewing bondholders in favor of other creditors, this will likely occur within only a small subset of issuers. Stable, highly rated issuers that represent the bulk of the bond insurers' city GO exposure are not making decisions about who to pay first or not at all.
"As legislative actions are taken and current bankruptcy cases develop and set new legal precedents, we may evaluate the validity of our recovery assumptions imbedded in the capital charges we use to assess bond insurers' capital adequacy," said Standard & Poor's credit analyst David Veno.
