Aug 27 Detroit's sale on Tuesday of nearly $1.8
billion of water and sewer bonds attracted about $7.6 billion in
orders and will save the bankrupt city nearly $250 million, city
officials said on Wednesday.
The bonds, issued through the Michigan Finance Authority and
priced in the municipal market by senior underwriter Citigroup
Inc, raised funds to repurchase about $1.5 billion of
existing water and sewer bonds returned by investors under the
city's tender offer, which expired last Thursday.
The tender offer was aimed at replacing some of the $5.2
billion of existing revenue debt with lower-cost bonds.
Detroit reported a $113.5 million or 6.6 percent net present
value savings on the $1.64 billion refinancing portion of the
two bond issues, as well as a projected net cash flow savings
over the life of the bonds of $249 million. The city also raised
about $150 million to finance sewer-system improvements.
Nicolette Bateson, chief financial officer of the Detroit
Water and Sewerage Department, said the four times over
subscription for the bonds enabled underwriters to lower yields
during a repricing.
She added that the deals attracted 64 different
institutional buyers and a small amount of participation from
retail investors. Some of the buyers were investors that had
tendered bonds, according to the city.
Detroit launched the tender offer on Aug. 7 after most water
and sewer bondholders rejected the city's debt adjustment plan
in voting earlier this summer.
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
plan. Those bonds make up about $2.2 billion of the $5.2 billion
of existing debt.
If the refinancing deals close as expected on Sept. 4, bonds
that were not tendered will be paid under current terms.
Detroit, which filed the biggest-ever municipal bankruptcy
in July 2013, faces a key hearing that begins next Tuesday to
determine if its debt adjustment plan is fair and feasible.
Its treatment of bonds in the bankruptcy, which has included
defaults, 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. Some of the
senior and second lien bonds priced on Tuesday were insured by
Assured Guaranty Municipal Corp or National Public Finance
Guarantee Corp, lifting their ratings well into the investment
Daniel Berger, senior market strategist at Municipal Market
Data, said spreads on the city's water and sewer debt had
tightened considerably over the past few months.
"I think it's just a quest for yield," he said, regarding
the big demand on Tuesday for the debt.
Yields on tax-exempt bonds in the deals topped out in the
high 4 percent to low 5 percent levels with mostly 5 percent
coupons. The longest maturity was in 2044.
(Reporting by Karen Pierog in Chicago; editing by Matthew