Syncora Guarantee Inc. can’t fight Detroit’s water bond proposal, the judge overseeing the city’s bankruptcy ruled, removing the only objection to the city’s plan to refinance about $1.67 billion in debt.
The city is seeking approval of the deal today, a week before it starts a trial on its plan to cut debt and exit bankruptcy. Should U.S. Bankruptcy Judge Steven Rhodes allow the city to buy back the water and sewer bonds, a group of four bond insurers and investors will drop their opposition to the debt-cutting plan when the trial opens Sept. 2.
Syncora insures part of the city’s pension debt but not the water and sewer bonds. Rhodes ruled the company has no financial interest in the water and sewer bond deal. Syncora said it might be affected because the department of water and sewer will help pay for notes that may be issued as part of the overall debt-cutting plan.
Under the proposal, the city’s water and sewer department would buy back or redeem $1.67 billion of about $5 billion in bonds, Heather Lennox, a bankruptcy attorney for the city, said today in court. The bonds not repurchased would be honored and repaid without any change, Lennox said.
The refinancing would save more than $11 million a year for the first 19 years of the deal, Nicolette Bateson, chief financial officer for the water and sewer department said today in court. The refinancing would also raise $150 million for projects to improve the city’s sewage system.
Bondholders had until Aug. 21 to agree to sell back their bonds to the city. Had too few investors agreed, the city said, it would ask Rhodes to impose changes to the bond terms.
Bondholders balked at the city’s debt-adjustment plan, which seeks to cut interest rates on some securities or scrap provisions that protect investors from being forced to resell bonds before they mature. The proposal led the three biggest credit raters to lower their grades on the bonds to junk.
If Rhodes approves the arrangement, the city will try to sell new bonds to raise money to buy back the tendered debt. The entire deal should close by Sept. 4, should investors buy the new bonds.
The case is In re City of Detroit, 13-bk-53846, U.S. Bankruptcy Court, Eastern District of Michigan (Detroit).