CHICAGO -- As Detroit gears up to file its plan of adjustment this month in its historic bankruptcy, the chief mediator in the case ordered the city to meet with bondholders in mediation sessions next week.
Chief District Judge Gerald Rosen, who is overseeing negotiations between the city and its creditors, on Tuesday ordered Detroit to meet with bondholders over its planned treatment of its unlimited-tax general obligation bonds, limited-tax GO bonds, and nearly $6 billion of water and sewer debt. The meetings are set to be held in New York next Monday and Tuesday.
Rosen also ordered the city to tell bondholders how it plans to treat the water and sewer debt by Jan. 2, ahead of the formal mediation.
The water and sewer debt is considered among the safest of Detroit's bonds, with emergency manager Kevyn Orr treating it as secured under his original proposal for creditors, unveiled last June. Orr for months has been negotiating with suburban officials to create a new bond-issuing authority that would lease the systems, among the city's most valuable assets. The deal calls for the city to receive regular payments from system revenue.
Orr spokesman Bill Nowling said Tuesday that the city has not yet reached a deal with suburban officials. "Perhaps mediation can speed it along," Nowling said in an email to the Bond Buyer.
By Thursday, the city is to provide the bondholders with a written summary of the potential treatment of the water and sewer bonds under various proposals such as a long-term lease, according to Rosen's order.
The summary should include the amount the city expects to receive if the Detroit Water and Sewer Department is sold, leased or transferred to a new entity. The city has to tell bondholders how the bond payments will be treated relative to the privatization plan.
The city also needs to tell bondholders the payment terms of the debt, including treatment of existing call provisions and any proposed make-whole provisions. The summary needs to include the amount of legacy pension, other post-employment benefits and certificates of participation liabilities that the city intends to assess to the water and sewer department, according to the order.
On Monday, the city is to meet with water and sewer bondholders only, and on Tuesday it's to meet with both bondholders and bond insurers. The meetings will be held in the New York office of Jones Day, Detroit's law firm.
Parties include bond trustee US Bank NA; bond insurers Assured Guaranty Municipal Corp., Financial Guaranty Corp., and Berkshire Hathaway Reinsurance Group; and bondholders Black Rock Financial Management Fidelity Management and Research Co., and Eaton Vance Management. Talks with the city's unlimited-tax GO bondholders are set for Jan. 7, also in Jones Day's New York office. The city and Orr will meet with bond insurers National Public Finance Guarantee Corp., Assured Guarantee Municipal Corp., Ambac Assurance Corp., Syncora Capital Assurance Corp. and Syncora Guarantee Inc.
The city and Orr will meet with Black Rock Financial Management and Ambac Assurance Corp. on Monday, Jan. 6 for talks over the limited-tax GO bonds.
The city is treating both its ULTGOs and its LTGOs as unsecured, on par with pensions and OPEBs, with proposed recovery rates of around 10 cents on the dollar.