(Updated with corrected information about MBIA exposure to Detroit. It is $2.5 billion, not $3.4 billion as previously stated.)
NEW YORK (TheStreet) -- Michigan's planned appointment of an emergency financial planner to take over the city's finances "should not be viewed as a negative" to financial guaranty insurers MBIA (MBI) and Assured Guaranty (AGO), according to MKM Partners analyst Harry Fong.
The controversial move to take over Detroit by Michigan Governor Rick Snyder, a Republican, is widely seen as assured, despite opposition from the city council and community groups. Detroit has more than $14 billion in liabilities, according to The New York Times, and tax revenues shrank dramatically from the loss of auto manufacturing jobs and the subprime mortgage crisis.
Assured Guaranty has about $2.8 billion in exposure to Detroit debt, including $355 million in general obligation debt, $1.85 billion of insurable exposure to water and sewer revenue bonds and $600 million in exposure to the Detroit school district, according to a report Fong published Monday. MBIA has $2.5 billion in exposure, including $100 million in general obligation debt. The bulk of this debt is backed by water and sewer revenue, according to Fong."Water and sewer revenue bonds would almost certainly be unaffected in the event of a bankruptcy, as the city cannot divert revenues from the utilities for general purposes," Fong writes. He further argues that the new financial manager "will have the power to sell municipal assets, restructure services, restructure labor contracts and reorder the city's finances." Fong adds that "an independent emergency manager should enable the city to avoid the conflict so evident in the City of Harrisburg, where the mayor and City Council have spent the better part of the last few years fighting over ways to solve the Pennsylvania capital's fiscal problems." -- Written by Dan Freed in New York. Follow @dan_freed
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV