The holders of $5.2 billion of Detroit water and sewer revenue bonds turned in only 28.34 percent of the debt for repurchase before Thursday's expiration of the city's tender offer, according to tender agent data.
Real-time data posted online by Bondholder Communications Group showed nearly $1.47 billion of senior and second lien bonds were tendered by the 5 p.m. EDT deadline set by the city when it announced the offer on Aug. 7.
Robert Apfel, Bondholder Communications president, said official results would be announced by Detroit on Friday.
A spokesman for Detroit Emergency Manager Kevyn Orr did not immediately respond to a request for comment on the apparent lackluster response to the tender.
The bankrupt city must now determine if enough bonds were tendered and if sufficient savings would be generated by refinancing the debt. Detroit on Tuesday released preliminary sale documents for up to $5.5 billion of refunding water and sewer bonds that would be sold to pay for the tender.
If the city decides to proceed with the issuance, the bonds would be sold next week in the municipal market through lead manager Citigroup Inc or through a private placement with financial institutions.
Detroit turned to the tender offer after most bondholders rejected the city's plan to adjust $18 billion of debt in voting this summer. A key U.S. Bankruptcy Court hearing to determine if that plan is fair and feasible is scheduled for Sept. 2.
If the tender is accomplished, any remaining bonds that were not tendered would continue to be paid by the city under existing terms.
However, if the tender offer fails, call protection would be eliminated or interest rates would be reduced on "impaired" outstanding water and sewer bonds under the debt adjustment plan.
Fitch Ratings on Thursday said impaired bonds account for about 43 percent of the debt, adding that Detroit would likely lose a legal fight to keep the bonds impaired given their standing as special revenue obligations under the federal bankruptcy code and provisions in Michigan law and in Detroit's charter.
Fitch said the impairment options would have to be crammed down on bondholders by the bankruptcy court, a move that would likely harm the city.
"Impairing otherwise healthy and performing special revenue debt despite the protections of federal, state and city law may make it more difficult for Detroit to issue special revenue obligations in the future," Fitch said in a report.
Credit ratings on the water and sewer bonds fell into the junk category as Detroit's bankruptcy case, filed more than a year ago, progressed.
Detroit's Board of Water Commissioners has scheduled a Friday meeting to evaluate the tender offer results. Approval by Judge Steven Rhodes, who is overseeing Detroit's biggest-ever municipal bankruptcy case, is also needed for the bond tender.
(Reporting By Karen Pierog and Lisa Lambert; Editing by Chris Reese and Tom Brown)