San Bernardino leaders want to use the California city's bankruptcy to force benefit cuts on the city's firefighters after spending more than two years trying to hash out a compromise deal with its employees, Dow Jones Daily Bankruptcy Review reported today. In court papers, San Bernardino's lawyers asked a bankruptcy judge for permission to throw out the collective bargaining agreement for unionized employees within its fire department — an agreement that city officials said contains expensive promises that the 200,000-resident city can no longer afford.
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 Puerto Rico Electric Power Authority (Prepa) struck a deal with bondholders yesterday to develop a restructuring plan to revive the debt-stricken utility as it won an extension of vital lines of credit it uses to buy oil, Reuters reported yesterday. Prepa is widely viewed to be in the weakest condition of Puerto Rico's highway, water and electricity agencies. A restructuring of its debt, moving to cheaper fuel and cutting jobs are seen as ways to ensure longer-term health of the utility. Under the terms of yesterday’s deal, bondholders and insurers holding more than 60 percent of its bonds gave Prepa the go-ahead to develop a restructuring plan by March 2, 2015. It pledged to appoint a chief restructuring officer by Sept. 8. The deal includes bondholders currently suing Puerto Rico over a new law that provides a legal framework for some public corporations to enter a bankruptcy-type process, Prepa said. Oppenheimer Funds, Franklin Templeton Investments and hedge fund Blue Mountain have sued to annul the act. Crucially, bondholders will receive payments on interest and principal during the period that covers a $209 million debt coupon payment in January. However, it was unclear whether a restructuring plan would involve a writedown of Prepa's debt. http://www.reuters.com/article/2014/08/15/usa-puertorico-prepa-idUSL2N0… For more on Prepa and Puerto Rico’s new law, the Public Corporate Debt Enforcement and Recovery Act, be sure to listen to ABI’s latest podcast: http://news.abi.org/podcasts/151-examining-puerto-rico-recovery-act-and…
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…
Puerto Rico's cash-strapped electric power authority faces a key deadline today to extend lines of credit with banks or face a possible restructuring of about $9 billion in total debt, the Wall Street Journal reported today. Extensions of the loans would help the Puerto Rico Electric Power Authority (Prepa) to overcome a short term cash crunch and avoid more uncertainty about its future, which is roiling the market for Puerto Rico bonds. The authority last month reached deals with Citigroup Inc. unit Citibank and banks led by Scotiabank de Puerto Rico, a unit of Bank of Nova Scotia, to delay some payments on $671 million it owed the banks between July and mid-August. It was the second agreement to postpone payments. The power authority said in a statement that it is prohibited by nondisclosure agreements from providing details on talks with its lenders, bondholders and bond insurers. Prepa owes $146 million to Citigroup and $525 million to the syndicate led by Scotiabank on a credit line that matures today, Standard & Poor's Ratings Services said in a report last month cutting the utility's bonds further into junk territory. The agency has already dipped into rainy-day cash to cover its debts, tapping a reserve fund for $41.6 million to make a July payment to bondholders. (Subscription required.) http://online.wsj.com/articles/puerto-rico-power-authority-faces-thursd… In related news, the judge asked to consider the constitutionality of a new Puerto Rico law that allows government-owned entities to restructure debt outside of federal bankruptcy court wants each side to make its case by October, Bloomberg News reported today. Saying that the new law depressed the value of $1.6 billion in power utility debt they hold, bond funds affiliated with Franklin Resources Inc. and Oppenheimer Rochester Funds sued Puerto Rico in June, contending the Public Corporation Debt Enforcement and Recovery Act violates the U.S. Constitution. The law would let a commonwealth court restructure debt in a process akin to chapter 11 of the U.S. Bankruptcy Code. Puerto Rico has asked U.S. District Judge Francisco A. Besosa in San Juan Besosa to dismiss the suit and declare the law constitutional. The bond funds filed a summary judgment motion this week, taking the position that undisputed facts require Besosa to declare the law void, regardless of the specific circumstances under which it’s applied. The judge told Puerto Rico to file papers by Sept. 12 supporting its claim that the law is constitutional. The bond funds are to file opposing papers by Oct. 6. http://www.bloomberg.com/news/print/2014-08-14/puerto-rico-debt-law-bri… The situation surrounding Prepa’s debt and the introduction of H.R. 5305, the "Puerto Rico Chapter 9 Uniformity Act of 2014," will be discussed on the latest ABI podcast. A link to the new podcast will be included in today’s Bankruptcy Brief newsletter.
A federal judge yesterday again delayed the start of the key phase of Detroit's historic bankruptcy case, pushing it to Aug. 29 from Aug. 21, Reuters reported yesterday. U.S. Bankruptcy Judge Steven Rhodes on Tuesday had raised the possibility that the confirmation trial, on Detroit's plan to adjust $18 billion of debt and exit the biggest-ever municipal bankruptcy, may be delayed to allow time for the city to incorporate a major settlement over $5.2 billion of water and sewer revenue bonds into the plan. The judge's new schedule calls for individual creditors who are representing themselves and who are objecting to the plan to present their evidence on Aug. 29. Starting Sept. 2, the hearing will move onto opening statements from Detroit and from attorneys representing major creditors opposing the plan, including Syncora Guarantee, a bond insurance company that has launched a fierce battle on many fronts of the bankruptcy.
The bankrupt city of Stockton, Calif., on Friday submitted a revised plan to exit chapter 9 that reflects the judge's ruling over the value of a holdout creditor's collateral, but a larger question still looms over whether public pensions will be cut, Reuters reported yesterday. The Northern California city, which entered bankruptcy in 2012 and hopes to exit chapter 9 protection later this year, promised that it would pay a secured claim of $4 million, according to court documents. The city initially had valued the collateral as worthless. The value of the collateral, which includes two golf courses, a community center and a park, was a remaining point of contention in Stockton's case. Bankruptcy Judge Christopher Klein ruled in July that the collateral with which Stockton could pay holdout creditor Franklin Templeton was worth $4.052 million. In early proceedings, Franklin had argued the value was between $6.12 million to $17.34 million.
One of Detroit’s chief remaining adversaries in bankruptcy said that the city’s exit strategy was tainted by what it called the biases of its chief mediator, the New York Times DealBook blog reported yesterday. Syncora Guarantee, a bond insurer, said in a court filing yesterday that instead of setting aside his sympathies, the chief mediator, Gerald E. Rosen, had said repeatedly that he believed he ought to get the best outcome possible for a single group of creditors — the city’s retirees. The chief mediator in Detroit’s case is also the chief judge of the U.S. District Court for the Eastern District of Michigan, where the historic bankruptcy is being handled. Syncora said that it believed that the chief mediator was acting out of good intentions. But, it said, such compassion must be carefully weighed against the requirement that similar creditors be treated in roughly the same way. Syncora is an unsecured creditor, as are Detroit’s retirees, but Syncora has been offered not only a worse deal than theirs but also one of the worst in the whole bankruptcy: Detroit wants to repudiate debt that Syncora insured, dealing it a total loss of hundreds of millions of dollars.
