First it was Bond Buyer, and now Bloomberg News is using Central Falls’ expected exit from bankruptcy next week to take stock of Rhode Island’s solicitous attitude toward Wall Street and its bondholders. Michael McDonald and Steven Church report for Bloomberg:
Central Falls, the first city in Rhode Island’s 222-year history to go bankrupt, is preparing to exit court protection after 13 months by keeping bondholders whole while raising taxes and cutting workers and pensions.
The financial and political support Central Falls got from state officials makes the case unique among municipal bankruptcies in the past year from Alabama to California. …
The Central Falls approach “is a good sign for bondholders of Rhode Island bonds compared to, say, California,” said Alan Schankel, head of fixed-income research at Janney Montgomery Scott LLC, an investment bank in Philadelphia. …
“You take the bonds being held hostage out of the equation,” said James Spiotto, a bankruptcy lawyer in Chicago with Chapman & Cutler LLP.
To understand why Central Falls’ bankruptcy will likely go down as one of the major policy achievements of the Chafee administration, it’s instructive to read this May 2011 post explaining just how difficult the process was expected to be. For better or worse, depending on your perspective, Central Falls will now be held up as evidence that municipalities can use Chapter 9 effectively to get out from under their financial burdens.
Rhode Island’s high unemployment rate and long list of financial problems make it easy to miss the fact that significant progress has been made by the class of officials elected in 2010 – Chafee (and Rosemary Booth Gallogly) in Central Falls and other municipalities, Raimondo and Chafee with the state pension system, Taveras with the mess in Providence. The most important and toughest task remains, though – fixing the state’s economy.
• Related: Could RI’s pay-bondholders-first law be unconstitutional? (Aug. 12)
(photo: Ted Nesi/WPRI)