July 10 Holders of Detroit's $164 million of
unsecured, limited-tax general obligation bonds would only get
34 percent of their investment back under the city's debt
adjustment plan, according to a consultant's report released on
The 34 percent recovery listed in the July 8 report by
Kenneth Buckfire, president of restructuring firm Miller
Buckfire & Co, is higher than the estimated 10 percent to 13
percent rate Detroit outlined in its latest plan to adjust $18
billion of debt and exit bankruptcy. (Buckfire report: reut.rs/1lXIZOB)
But the rate is lower than the 74 percent recovery on $388
million of unsecured unlimited-tax GO bonds, which are backed by
voter-approved property taxes.
Last month, federal court mediators announced a settlement
over the treatment of the limited-tax bonds in Detroit's
historic bankruptcy case, but disclosed no details. The
announcement followed a mediation session between the city,
Ambac Assurance Corp, which guarantees payments on
most of the bonds, and mutual fund BlackRock Financial
The Miller Buckfire report includes a chart of claim
reductions Detroit is seeking as it makes its way through the
biggest municipal bankruptcy in U.S. history. Holders of $1.47
billion of certificates of participation the city sold in 2005
and 2006 to fund public pensions would recover only 11 percent
of their investment.
Apart from outstanding bonds, Detroit's $3.13 billion
pension liability would shrink by 54 percent and its $4.3
billion liability for retiree health care would be cut by 89
The city has offered its retirees a so-called grand bargain,
funded by $466 million from philanthropic foundations and the
Detroit Institute of Arts and $195 million from the state of
Michigan, to ease pension cuts and prevent a sale of art work to
pay creditors. Thousands of retirees and other city creditors
must vote on the plan by Friday.
The report, which outlines topics Buckfire will address in
court testimony, said the city should have "access to the
capital markets in the near term on reasonable terms" and it is
already soliciting exit financing.
Buckfire based that conclusion on preliminary discussions
with potential underwriters and the significant amount of
liabilities the city would shed under its debt adjustment plan,
according to the report.
He will also testify that creditors will receive better
treatment under the plan than if the bankruptcy case were
dismissed. A dismissal would block Detroit's access to the
capital markets and lead to a slew of creditor lawsuits, the
It also noted that while Miller Buckfire receives a $300,000
monthly fee from the city for advisory services, the firm will
get a $28 million restructuring fee once Detroit's debt is
recapitalized or restructured.
U.S. Bankruptcy Judge Steven Rhodes will begin a hearing on
the plan's fairness and feasibility on Aug. 14.
(Reporting by Karen Pierog in Chicago; Editing by Lisa