Detroit filed for bankruptcy last July, after decades of industrial decline. The bankruptcy was a watershed moment for the United States, and Wall Street has not ignored opportunities in the debt ridden city. Distressed debt investors of a certain bent have jumped on the city’s municipal bonds, and the heated buying hasn’t stopped there.
The involvement of large hedge funds in Detroit’s debt market may be beneficial for the city as it tries to negotiate a settlement with those holding its debt. Detroit emergency manager Kevin Orr managed to get the city’s bankruptcy through the courts without much of a fight in August, but there may be problems down the road as bondholders try to retain the value of their original investment.
Below is our 13F roundup for some high profile hedge funds for the three months to the end of March 2021 (Q1). Q1 2021 hedge fund letters, conferences and more The statements only include equity positions as 13Fs do not include cash and debt holdings. They also only include US equity holdings. Funds may hold Read More
Detroit bond offer
The city of Detroit has offered a deal that would see holders of secured debt get out without a haircut, but holders of unsecured debt and the city’s pension funds would not get off so easy. The deal is likely to be disputed by the pension funds at the very least, and likely by holders of other types of secured debt as well.
There is a benefit to having billionaire hedge funds involved in the Detroit deal. Distressed debt investors will already be buying the bonds at a big discount, and they’ll be happy to get away with a quick profit. Investors who bought Detroit debt at face value are less likely to take a deal. Hedge funds are essentially doing part of Orr’s job for him, making the process easier down the road.
Detroit helps out billionaires back
Bloomberg reported today that the State of Michigan had agreed to invest $450 million in the building of a new stadium for the Detroit Redwings. The team is owned by Ilitch Holdings, the owners of the Detroit Tigers, and Little Caesars Pizza. The investment shows that despite its bankruptcy, Michigan is still willing to invest in Detroit.
The move will be controversial, however, as the city attempts to default on at least some of the obligations it has to public workers. The two biggest pension funds in Detroit are underfunded to the tune of $3.5 billion according to reports. The $450 million investment could go a long way to relieving those obligations.