Phoenix LXVI: Get Your Kicks On Thread LXVI
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12-03-2012, 10:43 PM
Join Date: Apr 2007
Originally Posted by
well unless there are some bonds with specific assets backing them, but I don't think thats the case
it's the case with the sewer bonds and that's why their rating is (1 notch) better than the general bonds, though Moody's didn't like how the city used the sewer & water cushion to pay the NHL in FY2011. some of the subordinate excise tax bonds (such as those up for refinancing next week) would default first and are therefore rated lower than the general city rating.
everytime those news pop up we inevitably see a bunch of references to bankruptcy. I want to stress that bankruptcy is still very much a low-frequency event, even in these times, and that there are large US cities whose bonds currently have similar ratings (Philly's debt is also A2). the first-order impact of rating downgrades, as mesamonster correctly pointed out, is the increased cost of borrowing, which makes any long-run projections dicy. in figurative terms, in the past 3 years the COG has gone from Platinum cardholder status to "don't worry, you can still borrow from the corner bank" to loan shark territory. bankruptcy is still a very uncertain prospect but next week's bond issue will show how bad things can become.
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