Is Chicago Heading for Bankruptcy?

by San Antonio Attorney

The city of Chicago, rumored to be filing for bankruptcy, is currently facing challenges of trying to keep up with $25 billion worth of pension obligations.

The experts say bankruptcy can be a good thing as it may be the only solution to create awareness to politicians, unions and investors, especially in devising interventions for the financial future of the city.

Kevyn Orr, former emergency manager of Detroit said that bankruptcy served as an opportunity to converge various parties together, both in financial and labor aspects.

Richard Ravitch, the former lieutenant governor of New York since its bankruptcy filing last 1975 said that neither unions nor the banks have agreed should New York City failed to acquire the right to file under the bracket of bankruptcy law.

Bill Black, serving as the managing director and senior portfolio manager at the City National Rochdale, stated that bankruptcy scares away majority of the high quality buyers.  As a consequence, the leverage is lost through bankruptcy.

Black added that there’s only one benefit for the city filing for bankruptcy.  Sometimes, this provides more clarity to investors who are still willing to lend money.  This move can neutralize steep borrowing rates of the city.  Before the filing of bankruptcy, every potential risk was not identified.  Once filing is commenced, a price is already designated.

A lot may create lemonade from the lemons bankruptcy can give, but not everyone can be convinced of the other benefits of bankruptcy.

Laurence Msall, the president of the Civic Federation, a research group based in Chicago, said that the impending threat of bankruptcy can be effective in other cities except for Illinois, which has a ‘convoluted’ system.

Amid the ongoing bankruptcy petition in Illinois, the state legislature needs to pass a law that allows small municipalities to file.  As Illinois still has no official procedure for these things.

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