News Column

Bankruptcy judge approves Detroit water department bond buyback plan

August 25, 2014

By Matt Helms, Detroit Free Press



Aug. 25--Detroit's bankruptcy judge today approved a $1.5-billion deal for the city's water and sewer system to buy back bonds and refinance them at lower interest rates, a move that could save the department $241 million over 27 years.

The deal -- called a tender offer -- had wide support, including from Detroit emergency manager Kevyn Orr, the City Council, the Michigan Finance Authority and the state Treasury. City lawyer Heather Lennox, of the Jones Day firm, announced in court today that the city also now has approvals for the bond deal from the four companies that insure water department bonds.

Federal mediators in Detroit's bankruptcy case bargained the tender offer, in which the city asked bondholders to turn in bonds early. Though the offer was made to all holders of $5.2 billion in DWSD bonds, the target was a smaller subset of bonds, and Lennox said bondholders who own $1.5 billion in bonds accepted the deal.

The department planned to move quickly on selling new bonds on the market at lower interest rates starting Tuesday, in hopes of closing the deal on Sept. 4. The city is working with Citigroup and First Southwest to price and sell the bonds. Consultants said ratings agencies are expected to release new ratings of the DWSD's bonds today, and they're hoping that they move the department back into investment-grade territory, a status it lost amid the city's bankruptcy filing.

Lennox said that, if the deal goes through, any other DWSD bondholders would be unimpaired in the city's bankruptcy, clearing another category of creditors from the upcoming confirmation trial on Detroit's plans to exit the largest Chapter 9 filing in U.S. history.

Orr took the stand as one of three witnesses the city presented this morning, calling it a way for the city to save money and settle with creditors in its bankruptcy case.

"We're saying to the ratings agencies that we're getting our financial house in order in regards to this department," Orr said.

The only creditor to object was Syncora, the bond insurer that is the city's fiercest opponent in bankruptcy. Syncora insures no water bond debt directly but had argued that it had the right to object because some of the city bonds it insures are serviced through the water department.

"We have an interest in seeing that the debtor -- the city -- is able to service them going forward," Syncora lawyer Ryan Bennett argued.

Rhodes overruled the objection.

Contact Matt Helms: 313-222-1450 or mhelms@freepress.com. Follow him on Twitter: www.twitter.com/matthelms.

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(c)2014 the Detroit Free Press

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Source: Detroit Free Press (MI)


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