Municipal Capital Structure and Chapter 9 Priorities

Source: Juliet M. Moringiello, Widener University Commonwealth Law School, paper presented at the presented at the 5th Annual Municipal Finance Conference, 2016

In the wake of municipal bankruptcy filings in Detroit, Stockton, San Bernardino, and a handful of other municipalities, market participants, public officials and academics continue to question whether filing for Chapter 9 bankruptcy is the best solution to municipal financial distress. A new paper from Julie M. Moringiello proposes a different way of thinking about creditor priorities that extends beyond Chapter 9. Moringiello argues that it’s necessary to ascertain market expectations and consider the extent to which bankruptcy should honor those expectations. In order for Chapter 9 to be a more effective process for eliminating debt overhang, a more focused analysis of appropriate priorities is necessary.