Would a default on MCE bonds cast a long shadow for local governments in the bond market?
Such events tend to have a negative psychological impact on financial markets, even if unwarranted. However, the conditions necessary for, and likelihood of such a default, need to be understood. As explained in the answer above, a CCA has the two critical elements required by investors to ensure repayment of bonds – rate-setting authority and the ability to impose exit fees on departing customers, if necessary. In addition, the bonds supporting a CCA will also have tangible steel-in-the-ground generation assets backing them up.
