Central Falls Retirees v. Bondholders: Assessing Fear of Contagion in Chapter 9 Proceedings

Source: Maria O’Brien Hylton, Boston University School of Law, Public Law Research Paper No. 14-21, May 9, 2014

From the abstract:
Modern Chapter 9 litigation has been characterized by extraordinary protections for municipal bondholders, and Central Falls is no exception. Although not well understood by politicians, fear of contagion has encouraged the adoption of legal arrangements that have limited the bankruptcy courts’ ability to include bondholders in the cost of restructuring municipal debt. This preference for bondholders (and, by extension, their insurers) has meant increased misery for taxpayers and retirees. Given that all of these actors appear to have been complicit to some degree in the creation and maintenance of the fiscally imprudent conditions that triggered bankruptcy and that evidence of true contagion is modest, it is hard to justify special protections for bondholders.