"They're coming to take me away, ha ha..."
Posted on 01/19/2011 2:45:54 PM PST by FromLori
But, but, munis always pay back almost 100 cents on the dollar, even in bankruptcy, right? Wrong. Bankrupt Vallejo just filed a POR to pay back unsecured creditors between 5 and 20 cents. "The city regrets that it cannot pay a higher percentage,” Vallejo officials said in the court filings. “The city lacks the revenues to do so while maintaining an adequate level of municipal services, such as the provision of fire and police protection and the repairing of the city’s streets." Just wait for the reaction when holders of unsecured debt all those other (hundreds of) insolvent cities, towns, and states realize that a 5 cent recovery is all too possible...
And now for the bad news, from Bond Buyer:
Unsecured creditors will receive 5 cents to 20 cents on the dollar for their claims under a reorganization plan Vallejo, Calif., filed Tuesday in federal court.
The plan to exit bankruptcy outlines the reorganization of debt the city owes its largest creditors, Union Bank and National Public Finance Guarantee. It also sets aside a pool of $6 million to pay unsecured creditors about 5% to 20% of their claims over two years, according to court documents filed in U.S. Bankruptcy Court for the Eastern District in Sacramento.
The formal legal plan is based on a five-year road map City Council members approved at the end of November, tackling $195 million in unfunded city pension obligations, cutting payments for retiree health care, reducing pension benefits for new employees, raising pension contributions for current workers, and creating a rainy-day fund.
Union Bank, the largest creditor, is owed $50 million after holding letters of credit on four series of defaulted COPs. The filing indicates Union Bank will get a new “lease-leaseback” obligation in exchange for canceling the COP series. It will also get $6 million of unspent proceeds from the COPs held under trust agreements.
Union Bank is slated to get 40% less than what it would have received from the original COP scheduled payments, according to the Vallejo filing.
Vallejo’s exit strategy includes restructuring the debt owed to unsecured creditors, many of which are employees and retirees, by creating a $6 million pool of cash that will be paid out over two years. They will still be able to pursue one of the city’s insurance pools to settle the liabilities, according to the documents.
Vallejo is certainly not the last to file a plan of reorg that attributes its GUCs nuisance value. We wonder when these same GUCs realize they are nothing but a nuisance: today the MUB actually closed up.
When Obama assumed took power, not only did I dump the last of my stocks, but I also dumped all municipal bonds. In the climate created by a communist in our White House, I have no faith in any investments other than gold and lead.
LOL! Muni bond holders (like GM bondholders) will get screwed while the unions will be protected. Socialism and fascism under Hussein.
Keep watching TV folks cause all the networks including Fox (BEck & O’Reilly love him) love Obama. They keep him in power and keep the lie going.
worse than junk bonds
Smart move.
Some who are not out might find this discussion interesting.
Perceptions Are Not Reality: U.S. Investors are Being Duped More than Most
-Government debt Ceiling will have to be raised again and again.
-Bullish stock market sentiment suggestive of a peak.
-U.S. inflation indexes confirming what the rest of the world knows.
full podcast
http://mcalvanyweeklycommentary.com/
“LOL! Muni bond holders (like GM bondholders) will get screwed while the unions will be protected. Socialism and fascism under Hussein.”
You can bank on it. What’s that story of the frog in the boiling water?
I’m thinking I’m retiring early and cashing out/moving my money to Simmons [mattress company] national bank and trust.If I were a vendor in California, I’d require cash payment up-front for any purchase, period. Screw that city and their bloated pension obligations.
How about being a vendor in Illinois just as bad...
“According to 60 Minutes, the state of Illinois is six months behind on their bill payments. 60 Minutes correspondent Steve Croft asked Illinois state Comptroller Dan Hynes how many people and organizations are waiting to be paid by the state, and this is how Hynes responded....
“It’s fair to say that there are tens of thousands if not hundreds of thousands of people waiting to be paid by the state.”
http://www.cbsnews.com/stories/2010/12/19/60minutes/main7166220.shtml?tag=contentMain;contentBody
This is one way to downsize local government. There is a lot of talk that some of these small localities may consider dis-incorporation and revert whatever services they provide to the next entity up the chain; the County for example.
Ping
Those who are preparing for inflation are going in the wrong direction.
Acquire and hold cash, both in the bank and under the mattress.
Michael Milken went to prison for selling "junk" bonds. The bonds he sold had an average payback that was much higher than this.
He wasn't charged with selling junk bonds.
"They're coming to take me away, ha ha..."
Soon we will start hearing stories about how the employee pension fund of some cities have some of their money invested in muni bonds of their own cities.
A double whammy if there ever is one.
“Acquire and hold cash, both in the bank and under the mattress.”
Actually, it looks like we’ll get both (or are already getting both). We are getting some degree of deflation in non-necessities (plasmas, and other things that people don’t have money for), but we are getting killed in necessities (i.e., gas, food) - while the gold price anticipates massive inflation. The deflation is due to an imbalance, with production and inventories being way ahead of demand - but that will balance out...and the deflation will be gone. The inflation is simply due to printing dollars...there is no other outcome.
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