CHICAGO - Detroit Friday gained final state approval for a plan to issue $1.1 billion of bonds for its bankruptcy exit financing and to raise money to pay off several creditors.
The Detroit City Council has already signed off on the borrowings, which the city argues are key to its timely exit from Chapter 9 and for investment into services that are part of the city's plan of confirmation.
The federal judge overseeing the trial on the city's confirmation plan still needs to approve the deals.
The borrowings include a $325 million exit financing that will initially be a private placement with Barclays. The bonds will feature an intercept on the city's income tax revenue. Covenants would require the city to keep income tax rates at a level sufficient to generate at least 2 times debt service coverage.
Proceeds will be used to pay off an earlier $120 million of a debtor-in-possession financing with Barclays. The city will also use some of the money for service improvements.
The board approved another $777 million of bonds that will be structured as limited-tax general obligation bonds featuring a first-budget obligation.
A $55 million series will be used to pay off limited-tax general obligation bondholders, who settled for a 34% recovery on their $164 million claim.
Another $88 million series will be used to raise money to pay off holders of $1.5 billion of disputed certificates of participation. The $88 million of bonds will be payable from the city's parking revenues and supported by a first budget obligation pledge and proceeds from the ad valorem tax levy.
A chunk of the COPs proceeds will go to Syncora Guarantee Inc., which holds $390 million of the COPs and reached a settlement with the city three weeks ago.
Another piece of the proceeds will be set aside for the remaining COPs holders, including Financial Guaranty Insurance Co., which insures $1.1 billion of the bonds, and a group of hedge funds. They have not settled with the city, but can have a piece of the remaining proceeds if they agree to the offered recovery in the plan of confirmation, estimated at lower than 14%.
The series of $632 million of LTGO bonds will be used to pay various unsecured creditors, according to loan board documents. The bulk of the proceeds will be used to pay off retiree health care benefits debts.
The emergency loan board is made up of three members of Gov. Rick Snyder's administration, including the state treasurer or his deputy.
