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Aug 21 Detroit has once again raised the possibility of having a regional water and sewer system authority in the latest version of a debt adjustment plan the city filed in the U.S. Bankruptcy Court late on Wednesday.
The new draft of the plan -- the last one expected ahead of a financial feasibility trial scheduled to open in early September -- also includes the city's current effort to repurchase $5.2 billion of outstanding water and sewer system revenue bonds.
Nearly 25.7 percent of the bonds were tendered by late Wednesday, according to tender agent Bondholder Communications Group. Bondholders have until 5 p.m. Eastern Time on Thursday to take up the city's tender offer.
If enough bonds are returned and if the city can project sufficient savings from a planned bond refunding, Detroit could sell up to $5.5 billion of refunding bonds in the municipal market as soon as next week. The city also could privately place the debt with financial institutions.
Discussion of the proposed regional authority to run the city's water and sewer services returned to Detroit's plan after the idea was dropped in a prior draft earlier this year.
That prompted Judge Steven Rhodes, who is overseeing Detroit's historic bankruptcy case, to order the city and Wayne, Macomb and Oakland counties into mediation on the concept. Detroit currently provides water and sewer services in those counties, but the system is in need of costly repairs.
"As a result of mediation or otherwise, it is possible that the city may enter into an authority transaction that includes the formation of the DWSD (Detroit Water and Sewer Department) Authority to conduct many or all of the operations currently conducted by DWSD," the sixth amended plan said.
It added that the deal would be subject to approval by the bankruptcy court and other involved parties and would require the three counties to drop their objections to the debt adjustment plan.
As part of Detroit's plan to adjust $18 billion of debt and exit the biggest-ever municipal bankruptcy, the city said it would use $408.6 million in water and sewer revenue over nine years to cover payments to the Detroit General Retirement System accrued through June 30. The three counties have objected to the revenue diversion, contending the money is needed for critical system improvements.
Rhodes will commence on Sept. 2 a lengthy confirmation hearing on Detroit's plan to determine if it's fair and feasible. The key proceeding had been slated to start on Aug. 29 with objections from individual creditors without legal representation, but Rhodes on Wednesday postponed that portion until later in the hearing.
The updated financial plan also touches upon a state-run financial review commission, created under a new Michigan law, which would oversee Detroit's finances after it exits bankruptcy.
"The financial oversight board shall be composed of individuals with recognized financial competence and experience and shall have the authority to, among other things, impose limits on city borrowing and expenditures and require the use of financial best practices," the plan said.
It added that the city will "promptly" provide the court with any reports given to or received from the commission.
Rhodes last week directed Detroit to present details at the confirmation hearing on how the law will be implemented.
The law, which was enacted in June as part of Michigan's $195 million contribution to the plan, creates a nine-member panel that will stay active until Detroit meets certain financial thresholds. (Reporting By Karen Pierog; Editing by Greg Mahlich)