R.I. setting standard for bondholders’ love

THE FINANCIAL and political support from state officials shown to Central Falls is unique among the municipal bankruptcies seen this year across the U.S. from Alabama to California.
Posted 8/29/12

BOSTON - 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.

Yet “there are great lessons to be learned here,” said Theodore Orson, who represented the state-appointed receiver overseeing the bankruptcy and is a lawyer with Orson & Brusini in Providence. Chapter 9 of the U.S. Bankruptcy Code, which localities can use to cut debt as companies use Chapter 11, “can be effectively utilized to fix what appeared to be a broken city,” Orson said.

A proposed resolution is set for review in federal bankruptcy court in Providence Sept. 6. The city’s plan to cut debt doesn’t impose losses on bondholders and may let them recover legal fees. State lawmakers also put investors ahead of other creditors by letting them put liens on city tax revenue. Rhode Island helped ease the pain of retirees and workers, providing $2.6 million to cushion pension cuts.

‘Good sign’

By contrast, Alabama state lawmakers refused to let Jefferson County raise taxes, prolonging the biggest U.S. municipal bankruptcy by months. California took away redevelopment tax money, contributing to two cities’ insolvency.

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.

Stockton, California, targeted lenders including bondholders when it sought court protection in June for the community of 296,000. It was one of three such filings in the state since June. Last year, there were 14 local-government insolvencies nationwide, including special tax districts, compared with six in 2010, data compiled by Bloomberg show.

Rhode Island has labored under the lingering effects of the longest recession since World War II, with one of the nation’s highest jobless rates. For Central Falls, the difficulties date to at least 1991, when the state took over its school district’s finances.

Next Page
PBN Hosted

Join PBN for the best networking event and party of the winter - January 15, 2015 - the Book of Lists Party at the Providence Public Library. Reserve your spot by December 31st and get a holiday gift from PBN!
  • Best Places to Work
    Enrollment is now open for the 7th annual Best Places to Work program. Winners w ...
  • Manufacturing Awards
    Applications are now being accepted for the 2nd Annual Manufacturing Awards. Dea ...
Purchase Data
Book of Lists
Book of Lists cover
PBN's annual Book of Lists has been an essential resource for the local business community for almost 30 years. The Book of Lists features a wealth of company rankings from a variety of fields and industries, including banking, health care, real estate, law, hospitality, education, not-for-profits, technology and many more.
Data icons
Data can be purchased as single lists, in either Excel or PDF format; the entire database of the published book, in Excel format; or a printed copy of the Book of Lists.
  • Purchase an e-File of a single list
  • Purchase an e-File of the entire Book of Lists database
  • Purchase a printed copy of the Book of Lists
    Latest News