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-- and speaking of the municipal bond market.
Let's find out why one professional investor thinks that the way that some creditors are being treated in this bankruptcy.
Could set a dangerous precedent with far reaching implications -- says Peter Pace.
He runs the had a black rocks municipal bond group overseeing -- 114 billion dollars in bond assets.
He is a frequent guest on this program and he joins us now on the phone Peter thanks so much for calling -- especially today.
We're talking about the general obligation bonds and the lenders there.
That -- are being treated like all other at least at this point all other unsecured creditors what does that mean for the bond market and general.
Specter more and bigger than thanks for having me that's a good question I think the first.
Part of that answer is that in terms of -- total amount vote.
The claim here about eighteen billion.
About eleven a little over eleven billion actually is this unsecured.
And all of that eleven billion over nine billion of that -- pension obligation so it's only about.
Debt as a component of this overall -- it's actually not.
That -- but problematic part.
Goes to your question and that refers to their obligation -- general obligation bonds as we consider them other investors to do.
And have always been considered whether to see us state or nation.
It's essentially sovereign like that it backed by the full -- and credit.
Of that particular entity -- either cut spending raise taxes or Friday -- the -- to help pay.
That debt service but in this particular case the emergency managers actually.
Taken -- general obligation bonds -- is treating him on an equal.
Forcing basis that's all all their unsecured claims and that statistic that's the one I think that the markets.
Going to be watching as is bankruptcy moves forward and by the way is bankruptcy may take years and years results -- the but the.
Years and years hater -- more talking about like the beginning of next year's you do not think this will be resolved by the.
-- very difficult -- a lot of precedent in chapter nine bankruptcy then we can look at oil California they wouldn't.
Bankruptcy may of 2008 it took them three years to emerge and not nearly as large -- complex situations.
We have here is a lot at stake holders involved.
So it's likely to be a very long and protracted ballot in the first battle.
At least an emergency manager in the city is going to be a test of whether that bankruptcy is constitutionally.
Correct within the state of Michigan or not I think that becomes the first challenge then they have -- Proof that there installed it over the next several months obviously can even think about.
Settling or moving into bankruptcy court looking at all stakes his claim they have to move to some of those steps as well also get I think -- -- -- on the way out ultimately.
Also to be very expensive but to the city to move -- bankruptcy.
-- originally offered those unsecured creditors I think before the bankruptcy filing which their creditors shot down it was about seventeen cents on the dollar something thereabouts which would have also gone correct me if I'm wrong.
To be -- general obligation bond holders is there any way.
Is there any.
Entity that can intervene to make sure war that those bondholders are made -- and it would prevent certainly from that part of the bond market from being on.
Turned upside down.
Well look I think it's a great question that's the one that will be answered as it moves through through bankruptcy court.
-- it'll -- the -- statement.
Credit aspect of the general obligation -- entity so that something will be watching very very carefully and I think that that also brings up another point terms that.
The amount of unsecured claims being overlooked and -- in the original proposal by the emergency manager was so it'll all -- literally -- Where is about two billion dollar noted -- -- -- have percent -- we just didn't start very realistic point.
They give -- starter for more realistic point.
You may have gotten better.
I think better concessions that are better negotiating.
From all the stakeholders in that thirty day period prior to bankruptcy just didn't start guerrillas have went so as this moose who bankruptcy against that the along on the belt.
It will be watching the market will be watching very carefully how general obligation bonds treated.
I'd get -- one last thing one do you guys own any of -- of Detroit's debt at this point and two are you already seeing.
Signs of concern show up in municipal -- say on yields going out borrowing rates going -- and prices falling.
We we do own a small amount of -- And I think the important thing to remember is that.
The price of the bonds has been for quite some time now.
Reflective of a bankruptcy so this is this something more or less battle on the price of these bonds on -- dramatically this has been coming.
For quite some time -- decades in the making some people say but I think it's been accelerated over the last.
Several months but -- -- deteriorating financial position.
Also some discoveries of more liabilities in the -- Detroit -- -- emergency matters which I think surprised.
Everybody as well sort sort of been reflected in the price -- bonds in terms of the overall market that's another great question because.
Again this is becoming it's been telegraph spent -- scene.
But I think we are sensing a bit of nervousness in in the market this morning about.
What this might -- and I just say -- I think it's important for investors not to be reactive view headlines.
It's not indicative of the broader market Detroit is a very unique situation in terms.
The demographics -- 28% population decline over the last twelve years and very high unemployment.
To -- eroding tax base -- Serra.
We just don't see that in another city so it's not.
Indicative of the broader market is very important -- -- Thanks Peter is great of you to call and today being well will -- and Peter -- to thank you deny it later our.
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