CHICAGO -- Detroit's settlement with its limited-tax general obligation bondholders would repay them 34 cents on the dollar.

The settlement, one of the smallest so far for creditors, was revealed in a bankruptcy court report outlining expected expert testimony by Ken Buckfire, the city's investment banker.

The document notes that Detroit overall expects to shed just over 70% of the debt it had acquired prior to filing for Chapter 9.

The city plans to pay $3.14 billion on roughly $10.4 billion of debt, with the biggest cuts -- nearly 90% -- reserved for pension certificates of participation and retiree health care costs.

Detroit announced a month ago that it had reached a settlement with its limited-tax GO holders, which include Blackrock and Ambac Assurance Corp., but has never released the terms of the deal.

The court document notes that the city has $164 million of LTGOs without a lien on state aid, and $100 million of LTGOs with a state aid lien. The city plans to reduce the non-state-aid backed LTGOs by 66%, or $109 million, for a final recovery of $55 million. The 66% haircut appears to fulfill terms of the settlement with Blackrock and Ambac, though neither creditor was immediately available for comment.

The city intends to repay 100% on the state-aid backed LTGOs.

The 34% recovery is higher than the city's original offer of 10 to 13 cents on the dollar. But it's lower than the 74% recovery for unlimited-tax general obligation bondholders, a deal the city reached with those holders in April. Part of the ULTGO settlement requires that the LTGO holders get less money.

The LTGO payment is one of the few that will come as a cash distribution, according to the document.

Limited-tax GO bonds generally differ from unlimited-tax GO debt in that they often aren't secured by a specific tax levy, don't need voter approval, and do not carry a pledge to increase taxes as needed to meet debt service. The LTGOs have a first-budget obligation granted in state law, and are backed by the full faith and credit of the city.

In terms of total debt, Detroit carried $10.4 billion of obligations prior to filing bankruptcy, according to the report. It would slash that debt by 71% if the current plan of confirmation is approved, leaving a $3.14 billion outstanding debt.

The biggest reductions are nearly 90% reductions for the $1.4 billion of pension certificates of participation and $4.3 billion of retiree health care costs.

Pensions would be cut by roughly 54%, with the city paying $1.4 billion out of an original tab of $3.12 billion. The state and private foundations have pledged to make up some of the pension cuts through a "grand bargain" that also protects the holdings of the city owned art museum from sale.

Unlimited-tax general obligation bonds made up 12% of the city's total obligations and LTGOs made up 32%, according to the document. Retiree costs, including pension and OPEBs, made up 46%, and other debt accounted for the final 10%.

A trial on the plan of confirmation is set to begin Aug. 14. The city said in the document that it intends to call Buckfire to testify about the city's ability to access the capital markets, creditor recoveries and the proposed treatment of the Detroit Water and Sewer bonds under the proposed plan of adjustment, compared to what would happen if the case is dismissed.

Buckfire says repeatedly in the report that he believes the city will have no problem borrowing if the plan is confirmed.

His opinion comes partly from discussions with potential underwriters for an upcoming exit financing deal, he says. It's also based on the fact that Barclays was able to resell a $120 million debtor-in-possession loan it made to the city to the market without having to resort to so-called market flex interest rates to make the debt more attractive to lenders, and that traditional institutional investors participated in that deal, he said.

"The elimination and treatment of the city's significant prepetition liabilities will, in Mr. Buckfire's opinion, improve the city's attractiveness as a borrower on a post-emergence basis," the report said.

Detroit's revitalization plan, which relies on $1.4 billion of capital investment over 10 years, will also make it more attractive by growing a new tax base, according to Buckfire.

The banker also weighed in on whether an "efficient market" exists for debt similar to the Detroit Water and Sewerage Department bonds, which the city wants to impair either by lowering the coupon rate and/or by waiving call protection and then refinance into new debt.

Detroit is in the midst of soliciting exit financing, a long-planned $300 million deal that will the city will use to pay off the Barclays loan and for other post-bankruptcy costs.

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