The other 27 states that allow local governments to file for bankruptcy protection require the governments to overcome a series of legal hurdles first. The distinction is important to bondholders because a municipality may default without filing for bankruptcy protection, or it may file for bankruptcy protection but continue to pay some bondholders.įurther complicating matters is that states can’t file for bankruptcy protection, and local governments in 23 states can’t either. There are also “technical defaults,” where the issuer breaches a covenant, such as minimum debt service coverage, but the bondholder continues to be paid as usual.Ī bankruptcy, on the other hand, is a legal process that provides a financially distressed municipality legal protections from creditors while it develops and negotiates a plan for adjusting its debts. Although often intertwined, a default and a bankruptcy are not the same.Ī default is defined by Moody’s Investors Service as a missed interest or principal payment, an exchange where the bondholder received less than was originally promised, or a change in the payment terms. When discussing municipal credit quality, we often hear the concern that municipalities will file for bankruptcy or may default on their bonds. Products and services may be provided in various countries by the subsidiaries and joint ventures of DWS.The COVID-19 crisis has had an uneven impact on state finances jurisdictions, it is provided for use by professional investors only and not for onward distribution to, or to be relied upon by, retail investors. The information contained on this website is not intended as investment, accounting, tax or legal advice, but to the extent it may be deemed to be a financial promotion under non-U.S. The information on this website should not be construed as an offer or solicitation of securities or services or an endorsement thereof in any jurisdiction or in any circumstance that is otherwise unlawful or not authorized. Institutional investors outside of the United States are subject to securities and tax regulations within their applicable jurisdictions that are not addressed on this website. The DWS Americas website is published in the United States for institutional investors who are residents of the United States. and RREEF America L.L.C., which offer advisory services. KGaA and any of its subsidiaries, such as DWS Distributors, Inc., which offers investment products, or DWS Investment Management Americas, Inc. The brand DWS represents DWS Group GmbH & Co. Nothing contained herein is fiduciary or impartial investment advice that is individualized or directed to any plan, plan participant, or IRA owner regarding the advisability of any investment transaction, including any IRA distribution or rollover. Products and services may be provided in various countries by the subsidiaries and joint ventures of DWS. jurisdictions, is provided for use by professional investors only and not for onward distribution to, or to be relied upon by, retail investors. The information contained on this website is not intended as investment, accounting, tax or legal advice, but to the extent may be deemed to be a financial promotion under non-U.S. Investors or institutions outside of the United States are subject to securities and tax regulations within their applicable jurisdictions that are not addressed on this website. The DWS Americas website is published in the United States for investors or institutions who are residents of the United States.
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