Three major bond insurers appear to be working with Detroit's emergency manager to gauge their liability in the midst of the city's bankruptcy filing last Thursday.
Ambac Assurance Corp., Assured Guaranty and MBIA's National Public Finance Guarantee Corp. hold a total of more than $3.7 billion in municipal bond exposure to Detroit and its authorities. Should the city decide not to make good on its bond obligations—or a portion of it— the carriers would be on the hook to pay bondholders.
The city's Emergency Manager, Kevyn Orr, has proposed bondholders take a haircut as part of the Chapter 9 bankruptcy filing, to which the insurers object. At least one insurer, Ambac, argued publicly back on July 8 that the failure of both the city and state to protect General Obligation bonds would be harmful to both the city and bondholders.
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