Detroit to Sell Millions in New Debt to Settle Bankruptcy

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.net Pete Young, Jeffrey Taylor

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.