Michigan Governor Rick Snyder’s formal declaration that a financial emergency besets Detroit started the clock ticking for city leaders who may want to try to block a state takeover. It gave them 10 days.
Michigan’s Finance Authority plans to sell $92 million of one-year notes backed by state aid for Detroit’s public schools in the first deal tied to the city since it sought bankruptcy protection July 18.
Investors’ insistence on a yield 14 times higher than the AAA benchmark on $92 million of Detroit school notes is the latest example of municipal-bond market contempt for Michigan after the city’s record bankruptcy.
Emergency Manager Kevyn Orr’s plan to suspend payments on $2 billion of Detroit’s debt threatens a basic tenet of the $3.7 trillion municipal market: that states and cities will raise taxes as high as needed to avoid default.
A delayed bond sale by a Michigan county that’s home to the birthplace of General Motors Co. shows how Detroit’s fiscal distress is penalizing local governments in the eighth-largest U.S. state by population.
Detroit’s plan to reduce its $18 billion of liabilities may derail the biggest wave of Michigan debt issuance since 2009 and elevate borrowing costs as investors renew focus on the state’s approach to bondholders.