Fitch Ratings said yesterday that it is keeping Detroit’s water and sewerage revenue bonds on a watch list for potential ratings downgrades amid ongoing uncertainty about the city’s unfolding restructuring process, Reuters reported yesterday. A proposal to creditors by the city’s emergency manager last month called for a potential debt exchange that could shortchange some bondholders, although Fitch said there is no apparent legal basis to compel such an exchange. It added that the debt would have “substantial protection” in the event Detroit were to file what would be the biggest chapter 9 municipal bankruptcy ever.
The nearly bankrupt city of Detroit disclosed in a court filing yesterday that it agreed to dissolve a court order blocking bond insurer Syncora Guarantee from limiting the city's access to millions of dollars of monthly casino tax revenue, Reuters reported yesterday. The insolvent city sued Syncora earlier this month after the insurer allegedly told U.S. Bank, which controls the casino funds that were used as collateral in negotiations with creditors, not to release up to $11 million a month to Detroit, the suit claims. The city won a temporary restraining order that barred Syncora from interfering with Detroit's access to the revenue. Detroit and its state-appointed emergency manager, Kevyn Orr, notified Syncora on Friday that they were willing to lift the order, according to yesterday's court filing.
Detroit’s bid to stick investors with losses as part of an effort to avert a historic bankruptcy is jeopardizing municipal bond insurers’ recovery prospects, Bloomberg News reported yesterday. Insurers, including Assured Guaranty Ltd. and FGIC Corp., are on the hook for at least 95 percent of the $2 billion of unsecured Detroit debt that wasn’t issued for city utilities, data compiled by Bloomberg show. Kevyn Orr, the city’s emergency financial manager, proposes paying investors less than 20 cents on the dollar on those bonds as the auto-industry capital bleeds cash.
With the threat of a city bankruptcy looming, Detroit city workers and retirees are pushing back against the state-appointed emergency manager, filing lawsuits to limit his options and refusing to accept demands to keep details of their discussions secret, Reuters reported yesterday. One lawsuit, filed in Ingham County Circuit Court in the state capital Lansing, seeks to stop Governor Rick Snyder (R) from allowing the emergency manager, Kevyn Orr, to file chapter 9 municipal bankruptcy. That lawsuit claims Orr's plan to significantly cut vested pensions would violate strong protections in the Michigan constitution for retirement benefits of public-sector workers. A second Detroit employee lawsuit challenges the 2012 Michigan law that created the emergency manager position. In his June 14 proposal to creditors, Orr listed pensions as unsecured debt of the city. Payment on pensions, retiree health care and $641 million of general obligation bonds all would be made from the city's proceeds from $2 billion of notes Orr plans to sell as part of his restructuring plan. http://www.reuters.com/article/2013/07/11/usa-detroit-unions-idUSL1N0FG…
In related news, the Jones Day law firm racked up legal fees of nearly $1.4 million in its first six weeks on the job as the City of Detroit prepares for a major restructuring that could result in the largest municipal bankruptcy in U.S. history, the Detroit Free Press reported today. It is just one of many large expenses that city and state taxpayers will have to cover as legions of bankruptcy lawyers, financial advisers and other consultants work on a restructuring that could cost more than $100 million, said Douglas Bernstein, partner with Plunkett Cooney in Birmingham. Though no city as large as Detroit has ever declared bankruptcy, some comparisons exist, such as Orange County, Calif., which accumulated $86 million in bills during its 18-month stay in bankruptcy that ended in 1996, according to reports. Jefferson County, Ala., which is still in bankruptcy, has spent nearly $20 million in legal fees since August 2011, according to reports. http://www.freep.com/article/20130710/NEWS01/307100023/Detroit-legal-fi…
Ambac Assurance Corp. has turned to Harrison J. Goldin, New York City’s comptroller during its mid-1970s fiscal crisis, for advice on Detroit and its plan to partially repay some debt backed by municipal taxpayers there, Bloomberg News reported today. Detroit emergency manager Kevyn Orr halted payments on $2 billion in unsecured debt, including some tax-backed general-obligation bonds, in June. Ambac, a unit of New York-based Ambac Financial Group Inc. (AMBC) that insures $170.3 million in the securities, said that the move imperils the city’s recovery. Orr, appointed this year by Republican Governor Rick Snyder to oversee the fiscal recovery of Michigan’s largest city, has proposed skipping some debt payments, including those owed on $530 million in unsecured unlimited-tax and limited-tax general-obligation bonds. Orr is grappling with $17 billion in Detroit liabilities as he tries to avoid entering what would be a record municipal bankruptcy.
Detroit sued swaps insurer Syncora Guarantee Inc., blaming it for the withholding of as much as $11 million a month in casino-derived revenue, city Emergency Manager Kevyn Orr said, Bloomberg News reported on Friday. “Syncora is exerting power it does not have to get money to which it has no legal claim, and its actions are putting the city’s entire restructuring efforts in peril,” Orr said on Friday in a statement announcing the Wayne County Circuit Court filing. Detroit is seeking a court order barring Syncora and other defendants from taking any steps to limit the city’s access to revenues from its three casinos.
