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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.

Former Republican vice presidential candidate Paul Ryan says that Detroit’s chapter 9 bankruptcy is a warning to the U.S. and compares the Motor City to the NBC post-apocalyptic drama “Revolution,” The Detroit News reported yesterday. In a new memoir, the Wisconsin Republican who chairs the House Budget Committee, recounts Detroit’s collapse, along with General Motors’ decision to close its assembly plant in his hometown of Janesville. Ryan calls Detroit “a warning about what our country might face if we do not rethink how we are governing ourselves: a place full of good people with lots of potential lost amid the wreckage of bad policies and failed leadership…. If we keep it up we risk following in the path that left Detroit ravaged.”

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.

Municipal bonds will be excluded from the group of easily sellable assets that banks can use to show they’re able to survive a credit crunch, Bloomberg reported today. Regulators, including the Federal Reserve, are set to approve a final liquidity rule on Sept. 3. The most recent draft bars debt issued by states and municipalities from being listed as high-quality assets that could help sustain a bank through a 30-day squeeze. Hoping to head off the kind of vulnerability seen during the 2008 credit crisis, the Fed, Office of the Comptroller of the Currency and Federal Deposit Insurance Corp. based their rule on an accord reached by the 27-nation Basel Committee on Banking Supervision. An initial version proposed last year, which called for a 2017 implementation, was toughest on banks with more than $250 billion in assets or major global reach.

Moody's said that it will not downgrade Kentucky's credit rating despite a recent federal bankruptcy decision that could cost the state nearly $1 billion over 20 years, The Associated Press reported today. The credit-rating agency said that Kentucky has enough resources to manage the added expenses caused by a judge's decision to let a private Louisville community mental health center leave the Kentucky Employees Retirement System without paying its share of the $17.1 billion unfunded liability. Kentucky Retirement Systems is appealing the judge's ruling.

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.

Candidates are being interviewed this week for the position of chief restructuring officer at Puerto Rico's struggling power authority, Reuters reported yesterday. The Puerto Rico Electric Power Authority (PREPA) must hire a CRO by Sept. 8 under an agreement with creditors as it works on developing a restructuring plan to revive the utility, which has more than $9 billion in debt. The CRO will essentially lead PREPA through what are expected to be contentious restructuring talks, working with creditors to develop a business plan and manage the agency's liquidity. Interviews for the CRO are expected to last a few days. http://www.reuters.com/article/2014/08/20/puertorico-restructuring-idUS… For more on PREPA’s continuing distress, Puerto Rico’s new debt restructuring act and legislation in Congress looking to treat Puerto Rico as a state to allow a chapter 9 filing for the adjustment of municipal debt, be sure to listen to ABI’s latest podcast. http://news.abi.org/podcasts/151-examining-puerto-rico-recovery-act-and…

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