Aug 26 Detroit completed the pricing on Tuesday
of $1.8 billion of water and sewer refinancing bonds related to
a tender offer aimed at dealing with a big chunk of the bankrupt
A day after receiving approval from a federal judge
overseeing its historic bankruptcy case, Detroit offered the
bonds in the U.S. municipal market.
Underwriters led by Citigroup priced $937 million of
sewage disposal system senior lien bonds with a top yield of
5.10 percent for term bonds subject to the alternative minimum
tax and due in 2044. Yields on insured senior lien bonds topped
out at 4.42 percent in 2033, while yields on insured second lien
bonds had a top yield of 4.87 percent in 2036.
In a $855 million water supply system bond issue, yields
topped out at 4.52 percent for insured senior lien bonds due in
2037. Uninsured senior lien bonds were priced to yield 4.73
percent in 2034, and yields on insured second lien bonds reached
4.87 percent in 2036. The majority of bonds in
both issues carry 5 percent coupons.
Nicolette Bateson, chief financial officer of Detroit's
water and sewerage department, said officials were "still
churning through the process" and would not have any immediate
comment on the transactions.
Detroit, which filed the biggest-ever U.S. municipal
bankruptcy last year, launched a tender offer on Aug. 7 with the
hope of getting enough of the debt back and replacing it with
lower-cost bonds through a refinancing. Nearly $1.5 billion of
the $5.2 billion of outstanding water and sewer bonds were
returned for repurchase by a deadline last Thursday.
If the deals close as expected on Sept. 4, bonds that were
not tendered will be paid under current terms.
In the absence of the tender, call protection would have
been eliminated or interest rates would have been reduced on
"impaired" outstanding water and sewer bonds under Detroit's
debt adjustment plan. Those bonds make up about $2.2 billion of
the $5.2 billion of existing debt.
The refinancings, which raised money to repurchase the
tendered bonds and fund projects, were expected to cut annual
debt service costs and result in savings projected at about $241
million over 26 years.
Detroit's treatment of bonds in the bankruptcy, including
defaults on certain general obligation bonds and on $1.4 billion
of pension debt, roiled the muni market and pushed the city's
bond ratings deep into junk territory.
Ratings for the refunding bonds were raised with some still
in the junk category and some investment grade.
Most of the bonds priced on Tuesday were insured by Assured
Guaranty Municipal Corp or National Public Finance Guarantee
Corp, lifting ratings well into investment grade.
The pricing of the bonds came just a week before a key
hearing is to start on Detroit's plan to adjust $18 billion of
debt. U.S. Bankruptcy Judge Steven Rhodes will determine if the
plan is fair and feasible.
(Reporting by Karen Pierog; editing by Andrew Hay)