Detroit eyes bankruptcy exit in second week of December: attorney
Detroit is eying a date between Dec. 8 and 10 for its debt adjustment plan to take effect, allowing the city to exit the biggest-ever municipal bankruptcy, an attorney said on Monday.
Heather Lennox, Detroit's attorney with law firm Jones Day, told U.S. Bankruptcy Court Judge Steven Rhodes that the city expects to complete a budget that incorporates the plan during the first week of December, clearing the way for the completion of financing to fund key creditor settlements.
Rhodes, who confirmed the city's plan on Nov. 7, did not set an effective date at Monday's hearing.
Lennox said the remaining issues with the settlements should be resolved this week, including state of Michigan approval for development agreements with bond insurers Syncora Guarantee Inc and Financial Guaranty Insurance Co. Both companies, which guaranteed payments on Detroit bonds, were given options to develop city property as part of their settlements.
The insurers will share in $88.43 million of taxable limited-tax general obligation (LTGO)bonds that Detroit plans to pay off over 12 years with parking revenue.
Detroit will also distribute $632 million of 30-year taxable LTGO bonds to various creditors, with the majority of the bonds going to voluntary employee beneficiary associations created under the bankruptcy plan to fund retiree healthcare. These bonds will carry 4 percent interest rates for the first 20 years, increasing to 6 percent for the last 10, with no principal payments for 10 years.
There are also two deals Detroit will issue through the Michigan Finance Authority, including $275 million of tax-exempt and taxable LTGO bonds secured by a statutory lien on the city's income tax revenue to finance the city's exit from bankruptcy. Variable-rate bonds will be initially placed with Barclays Capital, which will then price the bonds in a fixed-rate mode in the U.S. municipal market in early May.
The proceeds will retire earlier borrowing of $120 million from Barclays, pay settlements and fund restructuring initiatives.
Also passing through the authority is $287 million of unlimited-tax general obligation insured bonds to replace existing bonds, keeping the same terms, including interest rates and maturities.
All four financing transactions will close on the plan's effective date, according to Amanda Van Dusen, an attorney with law firm Miller Canfield, which is working on the deals.