Moody's: Detroit could set municipal bankruptcy prededent

Jul 29, 2013

Moody's Investors Service says other financially distressed cities in the U.S. are closely watching Detroit as it goes through bankruptcy.

Analyst Anne Van Praagh  of Moody's says other cities might follow Detroit's path, if the city can jettison most of its bond debt and reduce its pension obligations.

"But if Detroit finds itself bogged down in years of onerous proceedingd, or fails to materially reduce its debt, than that may actually be a deterrent for others to follow their approach," Van Praagh notes.

She says there won't be a huge number of city bankruptcy filings, no matter what.

Of the 7,500 or so rated local governments, she says only 34 are rated below investment grade. 

And the magnitude of Detroit's problems are unique,Van Praagh points out.  "No large, post-industrial city lost as much as Detroit" in terms of population and tax base.