Bob's Daily Buzzword: `Chapter 9'

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July 19 (Bloomberg) -- Bob Rice, general managing partner with Tangent Capital Partners LLC, explains "Chapter 9." (Source: Bloomberg)

It is specifically for municipalities and there are some similarities.

In both cases you have an automatic stay.

It freezes all the litigation so people cannot sue you anymore.

You have breathing room to work out your debts.

The court gets to enter some orders and at the end, rearrange the capital structure, but there is a big difference in terms of the amount of leverage that the creditors have.

It basically boils down to them having a lot less leverage in a chapter nine.

In theory, there are fewer distress to debt players that are interested.

In theory and practice.

They are just not showing up for this because they do not have the same kind of weapons they had in 11 to force an outcome they really want to see.

For example, you do not have anything about being able to liquidate the assets of the municipality.

You cannot force liquidation.

You cannot put your own blueprint for how the capital structure is going to look after the bankruptcy up to the court.

You can do both of those things in 11. therefore the creditors really drive the vote.

What does this mean as far as municipal plans go?

This is going to be a very interesting question.

What you have in the nine is that the judge has the ability to change basically all of the liabilities and obligations of the newness of howard t here.

-- of the municipality here.

What we are going to see is a tug-of-war.

It is going to be a lot less beneficial for the long because they are facing laborers, not common stockholders.

We are back in a minute.

This text has been automatically generated. It may not be 100% accurate.


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