Across the country, bondholders are keeping a close eye on San Bernardino and Stockton. There, investors are anxious to discover how modern municipal bankruptcies will divvy-up the pain – will it be the creditors or the employees who bear the brunt of the recovery.
Confidence in muni bonds could be shaken if the traditionally safe investments are impacted by bankruptcy rulings. The past thinking was that local governments would do anything to ensure their bonds were repaid. While the bonded indebtedness held by Stockton and San Bernardino is relatively small, larger cities are also watching the bankruptcy proceedings with an eye at their own debts.
Investors fear the precedent-setting possibilities of the current California bankruptcies.
Read the full article at the Los Angeles Times.