Chart: When Governments Go Bankrupt, Do Pensioners Or Bondholders Bear More Cost?

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When municipalities and cities go bankrupt, who takes priority: bondholders or pensioners?

The chart above, put together by Bloomberg this week, shows the recovery rates of bondholders vs. pensioners in six instances of municipal bankruptcy.

There’s a reason the chart looks the way it does: pensions are typically protected by law in more than one way. Investors, on the other hand, are guaranteed nothing; and investing in a cash-strapped municipality comes with risks.

Pensioners typically come out unscathed, although not always: they took a big hit when Central Falls ran out of cash.

Bondholders, on the other hand, usually bear the brunt of the pain. When San Bernardino went bankrupt in 2014, bondholders recovered a mere 20 percent of their money on average. Some recovered nothing.

Credit: Bloomberg

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