Independent firm says Detroit may have “set itself up for another Chapter 9”
Expert says “feasibility walks a very thin line”
Bankruptcy Judge Rhodes to announce decision on Nov. 7 at 2 pm.
VOD to have analysis up shortly
OCT 27, 2014 3:36pm ET
CHICAGO – On the closing day of Detroit’s bankruptcy trial, municipal research firm Municipal Market Advisors warned that the city may have just set itself up for another Chapter 9.
MMA, an independent advisory firm, issued the warning as part of its weekly outlook report released on Monday. It came out the same day as attorneys presented closing arguments to U.S. Bankruptcy Judge Steven Rhodes in the trial on the city’s plan of confirmation.
After privatizing or selling several of its assets, “Detroit has – in our opinion – set itself up to leave bankruptcy not only with a reduced debt load but with little financial and operational flexibility for the future,” the firm wrote.
“We think that it is more than ‘feasible’ that the city finds itself facing fiscal difficulties over the next five years. In effect, Detroit may wind up, on its first day of out of bankruptcy, as one of the most likely candidates for Chapter 9 in the state of Michigan.”
On the plus side, the city will have shed $7 billion of debt if Rhodes approves the plan, MMA said.
But improving operations could prove to be a major challenge for the post-bankrupt city.
And a “dysfunctional” K-12 school system will continue to limit the city’s attractiveness to new residents.
The firm noted that Martha Kopacz, a muni finance expert hired by Rhodes’ expert witness to review the feasibility of the city’s confirmation plan, affirmed the plan but warned the feasibility walks a very thin line.
“The feasibility described to the court by Ms. Kopacz is fragile at best,” MMA said. “And, it is important to remember that the target is to provide just adequate basic services: hardly an effective marketing spin.”