Aug 20 Underwriters for up to $5.5 billion of
Detroit water and sewer revenue bonds released preliminary sale
documents for the deals late on Tuesday as a tender offer for
existing bonds continues.
If enough bonds are tendered by 5 p.m. EDT (2100 GMT) on
Thursday and sufficient savings are projected, the refunding
bonds could be sold in two issues through the Michigan Finance
Authority with Citigroup as the lead underwriter. As an
alternative, the bonds could be privately placed with Citigroup
and other financial institutions.
Bill Nowling, a spokesman for Detroit Emergency Manager
Kevyn Orr, said on Tuesday a determination on how the bonds will
be sold would be made next week. With a public sale, the bonds
could be sold next week with the deals closing around Sept. 4,
The deals, which the Detroit City Council approved last
week, would still need approval from the Detroit Board of Water
Commissioners at its meeting on Friday. U.S. Judge Steven
Rhodes, who is overseeing the city's historic bankruptcy case,
also needs to sign off on the bond sales to raise money to pay
for the tendered bonds and provide new money for the utility.
In a report this week, Janney Capital Markets said that in
some instances, the tender price Detroit is offering to existing
water and sewer bondholders "is well below recent trading
The credit ratings on current water and sewer bonds were
dropped into the junk category as Detroit's bankruptcy case
According to the preliminary official statements, the senior
and second lien bonds will be structured with serial and term
bonds with yet-to-be determined maturities. The bonds are
payable with net water and sewer revenue, and payments on some
of the bonds will be guaranteed by a bond insurance company.
Assured Guaranty would insure the deals' reserve accounts.
The statements warn potential investors that the city's exit
from the biggest-ever municipal bankruptcy will be determined by
a lengthy court hearing set to begin Aug. 29 on Detroit's debt
adjustment plan. They also note Detroit could file for
bankruptcy again in the future, subjecting the bonds to
extraordinary optional redemption.
The documents also acknowledge that future governance of the
water and sewer department, which serves dozens of Michigan
communities outside of Detroit, remains up in the air. Options
under discussion are private management and a regional
As part of Detroit's plan to adjust $18 billion of debt and
other obligations, the city has proposed tapping $408.6 million
from the department over nine years to cover payments to the
Detroit General Retirement System accrued through June 30. Three
Michigan counties served by the water and sewer system object to
the revenue diversion.
(Reporting by Karen Pierog, editing by G Crosse)