Detroit sold about $1.8 billion in bonds tied to its water-and-sewer system on Tuesday, marking a key part of the city's efforts to improve its finances since filing for bankruptcy last year, The Wall Street Journal reported yesterday. Proceeds will be used to buy back existing debt and make improvements to the water-and-sewer system, which also serves surrounding communities. The system is currently operated as a city department and the debt deal could save the city millions of dollars, in part, through lower interest rates. Bankers on Tuesday's debt deal, led by Citigroup Inc., received enough demand for the bonds to lower some yields slightly throughout the day. A 2023 bond offered a yield of 3.24 percent and a 2037 bond offered a yield of 4.52 percent. Many of the bonds, to be paid back from water and sewer revenues, carried insurance.
A U.S. bankruptcy judge on Monday approved Detroit's proposal to repurchase nearly $1.5 billion of existing water and sewer revenue bonds tendered by investors and to refinance the debt to save money, Reuters reported yesterday. The ruling by Hon. Steven Rhodes clears the way for the sale of about $1.8 billion of refunding bonds to pay for the tender and raise $162 million for new projects. Treatment of the city's $5.2 billion of outstanding water and sewer bonds was a big hole in Detroit's plan to adjust $18 billion of debt after most investors in those bonds rejected the plan earlier this summer. Four insurance companies that guaranteed payments on the bonds agreed to the deal. Objections by holdout creditor Syncora Guarantee Inc. were rejected when the judge agreed that the bond insurer lacked standing because it does not insure nor own any of the bonds. Detroit expects the refinancing will cut annual debt-service costs and result in savings projected at about $241 million over 26 years. While the current water and sewer bonds are rated junk, the city hopes the refinancing bonds will be rated higher and plans to insure some of the debt. On Sept. 2, the judge will commence a hearing to determine if the city's debt-adjustment plan is fair and feasible.
Detroit Bankruptcy Judge to Consider Sanctions for Syncora Attorneys
Bankruptcy Judge Steven Rhodes will consider whether to impose sanctions on attorneys for bond insurer Syncora after they alleged that Detroit’s bankruptcy mediators conspired to protect pensioners and the Detroit Institute of Arts at the expense of financial creditors, the Detroit Free Press reported today. After Syncora accused the mediators of “naked favoritism,” the city asked Judge Rhodes to reject Syncora’s accusations and consider ordering the insurer’s attorneys to formally apologize or endure sanctions. Alternatively, Judge Rhodes could rule that Syncora’s objections are worthy of consideration during a trial that will determine the fate of Detroit’s sweeping restructuring plan. The Syncora issue is the latest spat between the city and the bond insurer that has inflamed what was already a bitter feud — so much so that Judge Rhodes instructed the two sides to stop using war analogies to describe their quarrels. Syncora’s decision to question the integrity of the mediators was strategic. “It seems that the tone is ramping up in an uncomfortable way,” said Prof. Melissa B. Jacoby of the University of North Carolina-Chapel Hill. Syncora is bidding to weaken the core pillar of Detroit’s bankruptcy restructuring plan: the grand bargain that would allow the city to accept $816 million in outside funding over 20 years in exchange for reducing pension cuts and transferring the city-owned DIA to an independent trust.
The Detroit Board of Water Commissioners agreed on Friday to repurchase nearly $1.5 billion of water and sewer revenue bonds tendered by investors, Reuters reported on Friday. Detroit launched the tender offer on Aug. 7 with the hopes of getting back enough of the $5.2 billion of outstanding debt and replacing it with lower-cost bonds through a refinancing. Pending court approval, about $1.8 billion of refinancing bonds would be sold in the municipal bond market on Tuesday. If the tender is accomplished, any remaining bonds that were not tendered would continue to be paid by the city under existing terms. Those bonds make up about $2.2 billion of the existing $5.2 billion of debt. Following a hearing today to take up the city’s motion to approve the bond tender, Hon. Steven Rhodes will commence a key hearing on Sept. 2 to determine if the city's debt-adjustment plan is fair and feasible. The refinancing bonds would be issued through the Michigan Finance Authority and priced by lead underwriter Citigroup. Detroit has set a Sept. 4 closing date for the deal.
Detroit, the biggest U.S. city to file for bankruptcy, updated its debt-cutting plan with details about its offer to exchange more than $5 billion in water and sewer bonds for new debt and said a deal on a new water agency may emerge from mediation talks with its suburbs, Bloomberg News reported yesterday. The city will agree to form an agency to take over its water and sewage department only if the surrounding suburban counties of Macomb, Oakland and Wayne agree to drop opposition to the debt-cutting plan. The counties object to the plan, claiming it might raise their residents’ water or sewage rates. Bondholders had through yesterday to decide whether to exchange their debt. Under the refinancing plan, the city will raise $5.5 billion, about $190 million of which will be used to improve its sewage-disposal system. The rest will be used to replace the old bonds on similar terms.
Underwriters for up to $5.5 billion of Detroit water and sewer revenue bonds released preliminary sale documents for the deals on Tuesday as a tender offer for existing bonds continues, Reuters reported yesterday. If enough bonds are tendered by 5 p.m. EDT today and sufficient savings are projected, the refunding bonds could be sold in two issues through the Michigan Finance Authority with Citigroup as the lead underwriter. As an alternative, the bonds could be privately placed with Citigroup and other financial institutions. Bill Nowling, a spokesman for Detroit Emergency Manager Kevyn Orr, said on Tuesday a determination on how the bonds will be sold would be made next week. With a public sale, the bonds could be sold next week with the deals closing around Sept. 4, he added. http://www.reuters.com/article/2014/08/20/usa-detroit-bankruptcy-bonds-…
In related news, Bankruptcy Judge Steven Rhodes canceled today an Aug. 29 hearing that was set to kick off the city’s bankruptcy trial, meaning the historic proceeding will now begin Sept. 2, the Detroit Free Press reported today. Judge Rhodes had scheduled the trial to begin Aug. 29 with a special proceeding in which individual retirees who objected to the city’s plan of adjustment would be given a chance to present their own evidence and witnesses. But the judge has decided to allow people who asked to participate in the trial to make their arguments later in the proceeding so they have an opportunity to respond to the city’s arguments. Altogether, about three dozen people filed timely requests to participate. The trial is currently set for Sept. 2-5, 8-12, 15-19, 22-24, 29-30; Oct. 1-3, 6-7 and 14-17. http://www.freep.com/article/20140820/NEWS01/308200178/1001/rss01
Bond insurer Syncora Guarantee Inc. said that Detroit’s deal to refinance $388 million in bonds is illegal because part of the tax dedicated to paying the debt will be given to city retirement systems, Bloomberg News reported yesterday. As part of the bankrupt city’s plan to address $18 billion in obligations, holders of certain tax-backed bonds would get new debt worth about 74 percent of what they are owed. Detroit’s two retirement systems will take possession of the old bonds accounting for the other 26 percent and be able to collect from taxes dedicated to paying off the debt. The bond deal is one of several settlements or legal issues that U.S. Bankruptcy Judge Steven Rhodes must rule on as part of the city’s historic bankruptcy-exit proposal. Under that plan, Detroit would impose about $7.4 billion in cuts on bondholders, pensioners and other creditors.
Detroit’s leading tax estimator, appearing as part of the city’s historic bankruptcy trial, defended the 10-year revenue model used to help justify imposing $7.4 billion in cuts on creditors including bondholders and pensioners, Bloomberg News reported yesterday. Robert Cline, an economist hired to create 10-year and 40-year revenue forecasts for the city’s bankruptcy-exit plan, testified in federal court in Detroit today that he factored in long-term population declines and weak job growth in estimating future tax collections. Bond insurer Syncora Guarantee Inc. questioned Cline’s work, saying that it assumed the city couldn’t raise tax rates or find new ways to increase revenue that could be used to pay creditors. Syncora, which may be forced to make up losses by city bondholders it insured, opposes the debt-cutting plan. Detroit, which filed a record $18 billion municipal bankruptcy last year, must convince U.S. Bankruptcy Judge Steven Rhodes at a trial that its debt-cutting plan is feasible and fair. While the trial is set to start Aug. 29, Cline was in court yesterday because he will be unavailable to appear after tomorrow.
Detroit plans to sell about $975 million in bonds for retirement costs and some creditor settlements as part of its bankruptcy restructuring plan awaiting approval by a federal judge, Bloomberg News reported on Friday. The Detroit City Council approved four issues on Thursday, including $632 million of tax-limited general obligations that would pay 4 percent interest for the first 20 years and 6 percent for another 10 years, according to city documents. The $632 million in bonds would finance $450 million for retiree health care through a voluntary employee beneficiary association, agreed to by retirees. Another $34 million would pay claims by the city’s Downtown Development Authority. http://www.bloomberg.com/news/print/2014-08-15/detroit-to-sell-millions…
In related news, a court-appointed bankruptcy expert filed a new invoice on Friday, charging the city nearly $313,000 in professional service fees for her firm’s efforts to evaluate Detroit’s debt-cutting plan, the Detroit News reported on Saturday. The bill, filed in U.S. Bankruptcy Court by Martha Kopacz, of Philadelphia-based Phoenix Management Services, outlines the services and expenses for her five-member team for the month of June. The latest tab is in addition to a $101,000 invoice Kopacz previously filed for nine days’ worth of work in late April after being appointed by Bankruptcy Judge Steven Rhodes. Judge Rhodes brought Kopacz in to assess the feasibility of Detroit’s proposed plan to restructure its debt and to review Detroit’s financial assumptions and projections. http://www.detroitnews.com/article/20140815/METRO01/308150089/-1/rss23
The Detroit City Council yesterday approved four bond issues to raise cash to pay settlements with some city creditors, according to the city clerk's office, offering a glimpse at how Detroit intends to finance its exit from the biggest-ever municipal bankruptcy, Reuters reported yesterday. The council signed off on the public sale or private placement of $5.5 billion of water and sewer revenue refinancing bonds that would fund the tender of existing bonds and raise additional cash for improvements. Bondholders have an Aug. 21 deadline to sell their water and sewer bonds back to the city, which will not proceed with the deal unless enough bonds are tendered. The council also approved $632 million of financial recovery bonds secured by the city's limited-tax general obligation pledge, which makes the repayment of the bonds a priority for the city's general fund budget. Proceeds from that issue would be allocated to certain unsecured creditors, including $218 million for a voluntary employee beneficiary association (VEBA) retiree healthcare plan for general city workers, $232 million for a VEBA for police and fire personnel, and $33.6 million for the Downtown Development Authority. http://www.reuters.com/article/2014/08/15/usa-detroit-bankruptcy-bonds-…
In related news, a bond insurance company fired back at Detroit's attempt to invalidate $1.45 billion of pension debt, claiming in a court filing on Wednesday that it was "fraudulently" led to guarantee payments on the debt, Reuters reported yesterday. Financial Guaranty Insurance Co., which insures more than $1 billion of the city's pension certificates of participation (COPs), filed a counterclaim against Detroit asking the U.S. Bankruptcy Court to dismiss the city's lawsuit seeking to void the debt. If the city prevails in its lawsuit, FGIC, one of Detroit's biggest hold-out creditors, asked the court for restitution and damages from the city or its pension funds that would be determined at a trial. Detroit, which is working its way through the biggest municipal bankruptcy in U.S. history, filed the lawsuit in January, claiming that the sale of the COPs in 2005 and 2006 violated borrowing limits imposed on the city under Michigan law. The COPs were issued during the term of former Mayor Kwame Kilpatrick, now in prison on federal corruption charges. http://www.reuters.com/article/2014/08/14/usa-detroit-bankruptcy-fgic-i…
