Bonds tied to Detroit’s bankruptcy accounted for three of the seven municipal defaults in 2013 as tracked by Moody’s Investors Service, showing the city is an outlier amid a nationwide recovery at the local level.
Detroit failed to pay holders of unlimited- and limited-tax general obligations as well as lease-backed debt, according to a report released today by New York-based Moody’s. The Detroit Academy of Arts & Sciences also defaulted, along with lease-revenue debt of Jefferson County, Alabama, the West Penn Allegheny Health System and the school district of Pontiac, Michigan.
Rebounding property taxes and real-estate values after the recession that ended in 2009 have boosted riskier parts of the $3.7 trillion municipal market. Moody’s said that while most defaults since 1970 were in health care and housing, governmental failures to pay are growing.
“Despite revenue and spending pressures from the sluggish economic recovery, local governments have largely succeeded in rebalancing operations,” wrote Moody’s analysts, including Alfred Medioli and Anne Van Praagh.
Last year’s default tally compares with an average of 1.3 annually from 1970 to 2007, Moody’s said. Thirty issuers have failed to pay since 2008.
Recovery rates on defaulted munis exceed those on company bonds, Moody’s said. The munis recovery rate averaged 64 percent from 1970 to 2013, compared with 48 percent for senior unsecured corporate debt from 1987 to 2013.
This year, munis are defaulting at the slowest pace in at least five years, according to data from research firm Municipal Market Advisors. Through April 23, nine issuers missed payments for the first time, compared with 25 in the same period of 2013.