...Detroit's proposed treatment of bondholders strains the boundaries of what creditors would have expected to be entitled to in a bankruptcy. The proposed plan of adjustment's (PPOA) treatment of utility bonds, as well as the city's suit to invalidate certificates of participation (COPs), will challenge traditional rating distinctions linked to bondholder security. The recent agreement between bond insurers and the city regarding ULTGO bonds is closer to what we would assume bondholders would receive without an express statutory lien but is still well below full recovery. If special revenue bondholders are impaired as proposed and/or the city's suit to invalidate is successful, there could be a roadmap for a legal strategy in a limited number of other cases. Most Detroit Bondholders Vulnerable: The agreement on the ULTGO bonds stipulates even more substantial impairment for LTGO bondholders. Holders of pension certificates of obligation (COPs) may get a very low recovery at best. Even bonds...
