Yesterday during my new regular gig as Marketplace Radio’s Morning Report commentator, I talked very generally about what the Harrisburg PA default might mean for the city and for other muni bonds around the nation.
The key things to understand are:
1. Harrisburg’s Chapter 9 filing was widely anticipated, the muni market is certainly not shocked.
2. Most of the distressed muni issuers (less than 1/10 of 1% of total) had a failed project that cost too much and didn’t deliver, some are in over their heads with entitlements.
3. When a municipality defaults, there is usually good coverage for the bonds themselves, the creditors are pretty high up in the chain to be paid once things are restructured. Chapter 9, while not pleasant, is by no means an end of the world scenario for bond holders.