Detroit to Sell Millions in New Debt to Settle Bankruptcy

By Chris Christoff

Aug 15, 2014 - Bloomberg

Detroit plans to sell about $975 million in bonds for retirement costs and some creditor settlements as part of its bankruptcy restructuring plan awaiting approval by a federal judge.

The Detroit City Council approved four issues yesterday, including $632 million of tax-limited general obligations that would pay 4 percent interest for the first 20 years and 6 percent for another 10 years, according to city documents.

Detroit, the former capital of the U.S. auto industry, filed a record $18 billion municipal bankruptcy last year after decades of population decline. Michigan’s largest city has been negotiating with many of its biggest creditors, including unions, pension plans and some bondholders.

The $632 million in bonds would finance $450 million for retiree health care through a voluntary employee beneficiary association, agreed to by retirees. Another $34 million would pay claims by the city’s Downtown Development Authority.

A sale of $288 million of unlimited-tax general obligation bonds would finance settlements with the city’s unlimited-tax debtholders who agreed to receive 74 cents on the dollar. Those bonds would be issued by the Michigan Finance Authority and backed by state aid to the city.

A $55 million issue would finance a settlement with holders of limited-tax debt, who would receive 34 percent of their claims.

The council also approved refinancing for $5.5 billion of the city’s water and sewer debt. The water system, which serves about 40 percent of the state’s population, has issued a tender offer to buy back a portion of the bonds in hopes of reducing costs and raising money for improvements.

To contact the reporter on this story: Chris Christoff in Lansing at cchristoff@bloomberg.net

To contact the editors responsible for this story: Stephen Merelman at smerelman@bloomberg.netPete Young, Jeffrey Taylor