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Commentary

Detroit Not Indicative of Widespread Muni Malaise

Even with the extraordinary events occurring in Detroit, the credit quality of the muni market remains high, says Morningstar's Beth Foos.

The City of Detroit filed for protection under Chapter 9 of the U.S. Bankruptcy Code on Thursday afternoon, marking the largest Chapter 9 filing in U.S. history and the first in the State of Michigan. The move came after weeks of negotiations between the city's state-appointed emergency manager, Kevyn Orr, and the city's creditors, which resulted in a failure to produce a compromise on the restructuring of Detroit's massive $19 billion of liabilities. 

As required by state statute, the city's petition comes with approval from Gov. Rick Snyder. In his authorization letter, Snyder stated that "it is clear that the financial emergency in Detroit cannot be successfully addressed outside of such a filing, and it is the only reasonable alternative that is available." He went on to explain that the decision comes "in the wake of 60 years of decline for the city" resulting in the city's inability to meet its obligations to its citizens and creditors. "The only feasible path to a stable and solid Detroit is to file for bankruptcy protection," the governor concluded.

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