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Euro Vultures Circle over Detroit


Not much meat is left on the bones of Detroit’s carcass, but leave it to finance to pick at what’s left. The WSJ reports that a handful of banks from Germany, Belgium, and Luxembourg that own $1 billion of bankrupt Detroit bonds will hold out in Michigan court to boost the price of their bonds and, eventually, their payouts:

Depfa Bank PLC, Dexia SA and a unit of Commerzbank AG have hired lawyers to protect their stake rather than immediately selling the debt—primarily bonds issued to help fund the city’s pensions. The move is unusual for banks, which typically don’t want to be mired in long bankruptcy-court fights, and it has frustrated a number of hedge funds that want to buy some of Detroit’s most battered bonds from the banks at deeply discounted prices.

Investors interested in distressed debt have figured out that blue cities, not just failing corporations, are ripe for the picking:

Since the 2008 financial crisis, there has been an average of 4.6 municipal defaults per year, up from an average of 1.3 defaults annually from 1970 to 2007, according to Moody’s. The average 10-year cumulative default rate still remains low at 0.12% compared with 11.8% for corporate borrowers.

The vultures are circling.

[Detroit image courtesy of Shutterstock]

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  • Pete


    Why is someone who wants to get back what they lent out considered a vulture?

  • Corlyss

    Good for the “vultures.” Finance is golden when you need it; a villain when it tries to hold people and institutions to the contracts they signed. Finance is not a charity. It’s a business. Business seems to be a dirty word in post cold war America – everyone is supposed to do everything for charitable reasons and not complain about the gross inequities of such a public delusion.

    • Andrew Allison

      post-Constitutional America?

      • Corlyss

        Brilliant! Again, may I quote you?

        • Andrew Allison

          Feel free!

  • Andrew Allison

    Given that the banks in question are following the lead of US companies who are holding out for Argentine debt repayment, the headline seems a tad xenophobic.

  • bigfire

    All I can say is this: Good for them for sticking their neck out in hope of getting paid. If the court rules against the bond holder and for the bankruptcy, they’ll take a minor bath here (the vulture funds pay fractional of the bond face value with the understanding that it’s a very risky investment). If it doesn’t they get paid. At least the previous bond holder got someone to take these dubious financial instrument out of their hands.

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