By Mary Williams Walsh, DealBook @ nytimes.com, August 8, 2013

[....] Detroit’s bankruptcy, the largest ever by a municipality, has raised fundamental concerns about the safety and security of municipal bonds, certainly in Michigan but potentially elsewhere in the country, too. The municipal bond market appears to be sending Michigan’s cities a message that no matter how well rated they are, they are going to have to postpone their plans and projects or pay more for them. [....]

Detroit’s state-appointed emergency manager, Kevyn Orr, has proposed imposing deep cuts on some bondholders — treating them the same, in effect, as retired Detroit workers who have been receiving city-paid health insurance that will now end. Mr. Orr’s bankruptcy plan would put them all at the back of the line for whatever money is available, as unsecured creditors.

And because the city’s bankruptcy filing was approved by the governor, Rick Snyder, it is seen as the best distillation of how Michigan will treat certain bondholders in times of trouble.

Putting a city’s “full faith, credit and taxing power” behind a bond no longer means what it did in the past, anywhere in the state, critics say. The governor and Mr. Orr have said they are not concerned about the effect of the bankruptcy plan on the municipal bond market as a whole. But other participants find their treatment of indebtedness profoundly disturbing, and their anxiety has spilled over to other Michigan municipalities [....]