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UPDATE 2-Detroit water board OKs repurchase of $1.5 bln tendered bonds
August 23, 2014 / 12:30 AM / 3 years ago

UPDATE 2-Detroit water board OKs repurchase of $1.5 bln tendered bonds

(Adds comments from Detroit water/sewer officials, details on potential bond refinancing)

DETROIT, Aug 22 (Reuters) - The Detroit Board of Water Commissioners agreed on Friday to repurchase nearly $1.5 billion of water and sewer revenue bonds tendered by investors by a deadline on Thursday.

Detroit, which filed the biggest-ever municipal bankruptcy last year, launched the tender offer on Aug. 7 with the hope of getting back enough of the $5.2 billion of outstanding debt through a tender offer and replacing it with lower-cost bonds through a refinancing.

Pending approval from U.S. Bankruptcy Court, about $1.8 billion of refinancing bonds would be sold in the municipal bond market on Tuesday, according to Nicolette Bateson, chief financial officer of Detroit’s water and sewerage department (DWSD).

The debt refunding will raise money to pay for the tendered bonds, as well as $162 million for construction projects, she said, adding that savings from the refinancing are projected at about $241 million over 26 years.

Detroit turned to the tender offer after most water and sewer bondholders rejected the city’s plan to adjust $18 billion of debt in voting this summer.

DWSD Director Sue McCormick said the voluntary bond tender offer accomplished two goals.

“The first was to execute a tender/refinancing transaction that achieved meaningful dollar savings for our customers,” she said in a statement. “The second was to seek an open market alternative to the impairment in the city of Detroit’s plan of adjustment.”

If the tender is accomplished, any remaining bonds that were not tendered would continue to be paid by the city under existing terms.

If it fails to be completed, call protection would be eliminated or interest rates would be reduced on “impaired” outstanding water and sewer bonds under the debt adjustment plan. Those bonds make up about $2.2 billion of the existing $5.2 billion of debt.

Judge Steven Rhodes, who is overseeing the city’s bankruptcy case, will take up the city’s motion for the court to approve the bond tender at a hearing on Monday. On Sept. 2, the judge will commence a key hearing to determine if the city’s debt adjustment plan is fair and feasible.

The refinancing bonds would be issued through the Michigan Finance Authority and priced by lead underwriter Citigroup. Detroit has set a Sept. 4 closing date for the deal.

The DWSD said it plans to pursue future refinancings of more than $1 billion of bonds that become callable within the next two years. (Reporting by Peter Suciu in Detroit; Additional reporting by Karen Pierog in Chicago; Editing by Meredith Mazzilli, Leslie Adler and Ken Wills)

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