Bond Markets

  • Expert says Bond Markets Leery After Detroit Bankruptcy

    Detroit’s bankruptcy casts a long shadow over the Metro region.

  • Detroit Exit Financing Bonds to be Re-Sold with “A” Rating

    The Standard and Poor’s agency is rating some Detroit bonds as investment grade, specifically the $245 million in exit financing issued last year as part of bankruptcy proceedings. The rating agency assigned the “A” rating largely based on a new Michigan law that pledges Detroit’s income tax revenue to secure the bonds for investors. Barclay’s Capital currently holds the bonds, and the city pays a variable interest rate. Here’s more from WDET’s Sandra Svoboda.

    By in Bond Markets, Feature
  • First post-bankruptcy bond rating expected this week for Detroit

    Detroit city officials are waiting for rating agencies to determine essentially how much it will cost to borrow $245 million for the so-called “exit financing” that was approved as part of Detroit’s post-bankruptcy financial plan. The bonds will be publicly sold on Aug. 19. Before then, Mayor Mike Duggan will attend information sessions for potential investors. One will be held Aug. 11 in Detroit, and another on Aug. 13 in New York City.

    By in Bond Markets
  • Catching up on Detroit’s bankruptcy news…and Puerto Rico’s

    Detroit’s blight

    The Detroit Land Bank Authority will receive nearly $12 million from the city’s general fund, following a split City Council vote last week. Land bank officials say they needed the monies to operate and continue demolition of vacant and abandoned properties.

    The council also transferred nearly 38,000 city-owned residential properties to the Land Bank, which seeks to put them back into productive use or clear them.

    The Detroit News reported:

    Council President Brenda Jones, who along with members Raquel Castaneda-Lopez and Janee Ayers voted against the subsidy, said she’s reluctant to take on the financial responsibility.

    Detroit, she said, is operating under the oversight of a Financial Review Commission that will go away if officials budget responsibly and avoid deficits for three years.

    “My concern is this; we just emerged from a bankruptcy,” Jones said. “The city looks pretty good. I don’t want a deficit to occur in three years because the city is going to be responsible for what the land bank does if the land bank doesn’t have any money.”

    The city’s blight was a major issue of the bankruptcy case, with several city officials testifying it was one of the top concerns as they looked to revitalize Detroit.

    Orr’s pay in Atlantic City

    Former Detroit Emergency Manager Kevyn Orr collected a higher hourly wage in his consulting role in Atlantic City than most of the attorneys who worked on the Detroit bankruptcy case, according to published reports.

    Orr, who was appointed by New Jersey Gov. Chris Christie as a consultant for the financially challenged casino town, charged $950 an hour during his three months of work. His total collected: about $70,000, the Press of Atlantic City reports.

    Bankruptcy watchers have sights on Puerto Rico

    Like Detroit did two years ago, the sunny island of Puerto Rico is facing a debt crisis: $73 billion owed to financial creditors, NPR reports. With four times the debt that purged Detroit into bankruptcy, the sunny paradise destination is looking for any solution out.

    With a junk status rating, Puerto Rico is trying to negotiate a new bond sale with Wall Street investors. At the same time, the island’s troubled energy company, PREPA, is desperately trying to stave off default. … To deal with its debt, Puerto Rico passed a law that would allow troubled agencies like the state-owned power company to seek bankruptcy protection. A federal judge struck down the law, though, ruling it violated the federal Bankruptcy Code. The commonwealth is appealing that decision. It’s also pushing for a law in Congress to amend the Bankruptcy Code to include Puerto Rico. In the meantime, the island needs to find money to pay its creditors. And that means raising taxes.








  • City secures $275 million in exit financing

    If and when Detroit emerges from bankruptcy, the city will have additional financing to help it operate.

    Barclays Capital has agreed to back up to $275 million in financial recovery bonds. The notes will be issued by the Michigan Finance Authority.

    Detroit officials say they will use the money, in part, for reinvestment and revitalization efforts though they haven’t given details of what those would be. The city could also use the bond proceeds to pay some creditors after the bankruptcy case is finalized in federal court. A previous $120 million loan from Barclay’s will be retired.

    The historic Chapter 9 trial is scheduled to begin Tuesday.



  • Art on loan? Proposal seeks to use DIA collection as collateral

    UPDATE: Here is the actual objection filed in court by creditors objecting to the DIA settlement proposed in the city’s bankruptcy case. In it, attorneys argue Judge Steven Rhodes should reject the city’s plans on the grounds that it does not maximize the value of the city’s assets (the artwork).

    The national media debuted the collection of stories that emerged this week about the latest genre of proposed deals to monetize the Detroit Institute of Arts holdings in order to pay creditors in Detroit’s bankruptcy case: a proposed $4 billion loan for the city using the artwork as collateral.

    The New York Times displayed the flair of pop art in its story:

    “On Wall Street, there is the art of the deal. In Detroit, there is the deal of the art,” the paper quipped. “Why not mortgage all the Van Goghs, Picassos and other works in the Detroit Institute of Arts? A company called Art Capital, which makes loans backed by artwork, has told the city it is willing to lend it up to $3 billion, roughly 10 times the exit financing Detroit is now contemplating, using the museum’s art as collateral.”

    While the Wall Street Journal seemed more of an Old Master in its no-nonsense news story:

    “Art Capital Group raised its proposed loan to Detroit to as much as $4 billion to help ease the city out of bankruptcy, if it uses its art collection as collateral. The art-backed loan is being touted the week before the start of Detroit’s municipal bankruptcy trial as an alternative to the so-called grand bargain, a complex deal using hundreds of millions of dollars in funds from the state of Michigan and private donors to protect the collection at the city-owned Detroit Institute of Arts, while helping to shore up city pension funds.”

    The city, for its part, left the canvass blank with officials refusing to even sketch an outline of such a deal, the Detroit Free Press reported:

    The city swiftly dismissed Art Capital’s latest proposal. Bill Nowling, a spokesman for Orr, said the city is “100% committed to the grand bargain.”

    “The city will not sell or leverage the art,” Nowling said in an e-mail. “This latest proposal is nothing but a thinly veiled attempted by our remaining hold-out creditors to improve their recovery at the expense of the city’s pensioners and its cultural assets.”

    In its gallery, the Detroit News displayed the variety of styles that have emerged in Detroit’s bankruptcy case, with bond insurers Syncora and FGIC arguing for sale (and presumably now mortgaging) of the art in order to spread available funds more evenly among creditor classes. The two companies continue their attempts to devalue the “grand bargain,” the deal that brings in $660 million of pensions as long as the DIA collection is protected from sale.

    “FGIC and bond insurer Syncora Guarantee Inc. have argued the grand bargain’s 20-year payout is the equivalent of about $400 million in today’s dollars and that more money can be extracted from the city’s art collection through a sale of some or all of the 60,000-piece collection.

    Art Capital said it is making the loan at a 5.5 percent to 8.5 percent interest rate, plus the LIBOR benchmark interest rate.”

    Detroit News columnist Daniel Howes, for his part, deconstructed the motivations of the bond insurers in having Detroit has a subject:

    Choosing to dump the grand bargain in favor of the bond insurer-backed Art Capital offer would risk deeper cuts to city pensioners because theoretically larger recoveries would be spread across a broader pool of unsecured creditors, the city says; would saddle Detroit with new debt it cannot easily manage; would ease the financial pain for bond insurers who reaped high yields off risky investments now gone sour. 

    That’s a) why they call it risk and b) why they created insurance. Detroit’s financial collapse, at least 10 years in the making, was perhaps the poorest-kept secret in American municipal finance, at least to those willing to look deeper than the easy fees and high yields they could reap from a political class too cowardly and too financially unsophisticated to make tough calls.


    The bankruptcy trial begins Tuesday and promises to be nothing, if not colorful.

  • DWSD bond deal approved in advance of bankruptcy trial…with timeline of deal

    Judge Steven Rhodes today approved  the city’s plan to refinance $1.5 billion of its water department debt.

    Earlier this month, the city announced a tentative agreement with creditors for the Detroit Water and Sewerage Department. The deal would allow for the refinancing of long-term debt because the city would buy back and then re-issue bonds. Since then, several bondholders have accepted the new terms. About $1.5 billion worth of water department debt will be re-financed at a lower interest rate under the plan.

    Emergency Manager Kevyn Orr testified today  that the deal saves the water department more than $ 11 million annually on debt service for about two decades. It also means several creditors will no longer object to the city’s financial restructuring plan because their bonds are not impaired as part of the settlement, which will help confirmation of the city’s Plan of Adjustment when the trial begins Sept. 2.

    Here’s a timeline of how the DWSD deal unfolded:

    Aug. 6: The Detroit Water and Sewerage Department approved a deal to allow the re-financing of about $5.2 billion in debt. After weeks of confidential mediation sessions, the city and its water department bond holders and insurers reached the agreement. It allows the city to buy back existing bonds and then re-sell them at a lower rate to pay off old debt. Commissioners for the Detroit Water and Sewerage Department say the deal will save customers money and reduce some operating costs for the department.

    More on that announcement here.

    Aug. 7: DWSD invites holders of water supply system bonds and sewage disposal system bonds to tender their bonds.

    Aug. 12: The Michigan Finance Authority passed a resolution approving financing for the bonds if the tender went through.

    Aug. 13: The Detroit Board of Water Commissioners authorized the terms of the new funding for bonds.

    Aug. 14: Detroit’s Emergency Manager Kevyn Orr issued an order that ratified the Board of Water Commissioners resolutions. The Detroit City Council approved the re-financing deal.

    Aug. 19: The Michigan Department of Treasury authorized the bonds.

    Aug. 22: The Detroit Board of Water Commissioners  accepted the bonds that had been tendered. The Emergency Manager approved and ratified the board’s order.

    Aug. 25: City attorneys argue to Judge Rhodes in favor of the agreement, which he approved.



  • On WDET: The latest with bond insurer Syncora

    One of the most outspoken, visible and controversial creditors in the city’s bankruptcy case is bond insurer Syncora. They’ve objected at seemingly every chance, arguing to Judge Steven Rhodes that the Detroit Institute of Arts collection should be sold to pay debt, pensioners are unfairly getting much better of a deal than financial creditors and that at least one of the city’s settlement agreements violates state law.

    In court today, one of Syncora’s attorneys argued that one of the city’s deals with other creditors violates Michigan law. During the ongoing negotiations to reduce$18 billion of debt, attorneys for the city of Detroit are striking deals with creditors. One of those agreements is for the refinancing of almost $400 million of bonds approved by voters and backed by property taxes. As part of that deal, some bondholders would receive about three-quarters of their value. The remaining bonds would go to the city’s pension systems, which could use taxes to pay off the debt.

    Ryan Bennett, representing Syncora, argued against the deal in front of Rhodes. “If the plan is confirmed, your Honor, the city will be permitted in fact required to unlawfully tax its property tax payers where such taxation would not be permitted under Michigan law,” he said.

    An attorney for the city says only the state can challenge the deal. An attorney from the state told the judge he supports the settlement. Judge Rhodes did not immediately rule on Syncora’s objection.

    Syncora also has filed legal documents alleging bias of the case’s mediators.

    Earlier, WDET’s Quinn Klinefelter spoke with one of Syncora’s attorneys, James Sprayregen, who is a restructuring partner in the Chicago and New York offices of Kirkland & Ellis law firm.

    Here’s a transcript of that full conversation:

    James Sprayregen: We do want to make it clear, we wish the city of Detroit well. We wish all of its employees and former employees well and we have no beef whatsoever with the pensioners. We were involved with a transaction that put $1.4 billion into the city’s pension funds because those funds were underfunded and we actually helped make those pension funds much better funded. Then the city turns around and says that that transaction was illegal and they want to keep the money and not pay us anything back. We believe under the bankruptcy code that we are very similarly situated with the pensioners and should be treated in a similar way rather than under the current plan where we’re getting virtually zero and the pensioners, after you adjust for all the actuarial calculations, are recovering nearly 100 cents on the dollar. Now we’re sympathetic to one dollar in cuts to any pensioner’s check and we understand that that can be difficult for anybody but under the bankruptcy code, we and the pensioners need to be treated similarly.

    QK: In fact to an extent you’re charging that the mediators that are in this case are biased to an extent, correct?

    JS: Yes, we didn’t charge that, we just quoted what they said publicly. And look, understandably they’re from the city of Detroit. They have great sympathy as do we for the claims of the pensioners. They have a love of the art museum and the assets there. We have no problem with any of that. It’s just when a city goes bankrupt, it has to comply with Chapter 9 in the way it distributes its assets, and you can’t take assets that are of very substantial value to the city, like the art, and sell it at a fire-sale price to a private foundation. You have an asset of the city that has been valued at anywhere from $800 million to $8 billion.

    QK: The art at the Detroit Institute of Art museum.

    JS: Exactly, and so that art is being transferred out of the city’s coffers not only to our detriment but to the great detriment of all of the city’s creditors for a price that is far below anything anybody has valued this art at.

    QK: You’ve mentioned the municipal bond deal that helped shore up the pension system back in 2005. The city has argued that that deal was illegal and should not count. The judge even from the bench has said he was iffy about it, that maybe Detroit should sue over it and they might win. I’m very much a lay person, but in your experience, is that unusual to have a judge from the bench argue in that kind of way?

    JS: Yes, we found that to be unusual. Our point on that was we were asked to help the city out of a pension jam which we did. We don’t think that transaction was illegal but it put $1.4 billion into the pension fund so if somebody thinks it’s illegal and they want to unwind the transaction, they can’t just say ‘Thank you for the money’ and keep the money, unwind the transaction and get the money back. I think anybody who is putting money into municipalities needs to be looking at the Detroit case very closely to determine whether the rule of law is going to apply here. We are in the United State of America and we do believe that ultimately the rule of law is going to be vindicated. But if it turns out that we can put $1.4 billion into a pension fund and then be told we have no claim, that will definitely impact the willingness of financial creditors to help out pensioners in the future.

    QK: You’ve mentioned in some other reports as well that it’s seems almost as if the city is setting up kind of unfair Detroit v. Wall Street scenario, that the whole situation is in effect being politicized. Why do you argue that?

    JS: Because we think that’s exactly what’s happened. Unfortunately it’s been set up like that and again, we think it’s very inaccurate and very unfair. Again, the money that caused us to be a creditor went to the pensioners and we think appropriately so. For whatever reason, Kevyn Orr when he came into his position called us and others ‘the Huns of Wall Street’ and started out the process that way. Obviously the state of Michigan, Judge Rosen himself and Kevn Orr have made number of public statements that are not friendly to financial creditors and we think that’s unfortunate because we think there’s a partnership amongst financial creditors, city, municipalities, workers in order to help bring Detroit back.

    QK: Are you getting any, I don’t know if feedback is the right word, but a sense from some of these people, “gee, why are you guys arguing about this, you’re standing in the way.’ This bankruptcy seems to be moving fairly fast for bankruptcy cases. They’ve set up these deals with pensioners, etc., getting all these people in line as they go through to argue the Plan of Adjustment and then here’s Syncora of Financial Guaranty and you’re the obstacles holding the whole process up. Why not just play ball and get out of the way?

    JS: That’s definitely the way it’s being attempted to be portrayed. All we’re asking for is that we be treated fairly, just like the other creditors are being treated fairly and if that happens we could have a consensual resolution this afternoon, and our door is wide open to do that and we’re still hopeful that that can occur.

    QK: How far is Syncora prepared to go if the judge would approve Detroit’s Plan of Adjustment. Can you appeal it to other courts?

    JS: We’re hopeful the judge will see this plan is not confirmable and send the city and Kevyn Orr back to discussions with us to reach a consensual resolution. But if not, and he were to confirm the plan, yes, we can appeal it to the district court and if we lose there we can appeal to the Sixth Circuit and if we were going to lose there, we could appeal to the U.S. Supreme Court. This is the largest municipal bankruptcy in United States history, and we believe it deserves the scrutiny a case of this size should get and we intend to go all the way to protect our rights.

    QK: Do you think Syncora would be a little bit reluctant to try to look at municipal bonds in the future now after all this?

    JS: The unfortunate thing here is there have been some people who have said, ‘Syncora, what were you thinking? You knew Detroit was in trouble and they were potentially going bankruptcy. Why did you do this transaction in the first place?’ I don’t think the type of conduct we want to encourage in America is to say that financial players should not be helpful to cities in trouble, and if you help a city in trouble, that’s your fault because then you’re just going to cause people to stay away from helping cities in trouble and you’re going to cause more municipal bankruptcies. I think we actually want to encourage financial creditors to be helpful in difficult situations and the way to do that is to have the rule of law apply.

  • On Detroit Today: Who has bankruptcy fatigue?

    WDET’s Bankruptcy Reporter and Next Chapter Detroit Blogger Sandra Svoboda joins Detroit Today co-hosts Laura and Saeed to discuss the latest in Detroit’s bankruptcy trial, what might be next and who has “bankruptcy fatigue.” Give a listen.

  • On The Craig Fahle Show: Water department deal and a look ahead to trial

    Detroit Free Press reporters Nathan Bomey and Matt Helms discuss the latest with WDET’s Bankruptcy Reporter and Next Chapter Detroit Blogger Sandra Svoboda. They cover the Detroit Water and Sewerage Department bond exchange deal, what questions Judge Steven Rhodes is asking based on his expert witness’s report, and what to watch for in advance of the city’s trial, now just two weeks away.