CHICAGO — Detroit wants to issue nearly $1 billion of new-money bonds, most backed by a limited-tax general obligation pledge, to finance its settlements with various creditors.
The Detroit City Council approved four bond issues at a special meeting on Aug. 14. The deals include a high-profile $5.2 billion refinancing of nearly all of the city's water and sewer bonds.
On the new-money side, the city wants to sell two issues of limited-tax GO bonds that total $687 million. It wants to issue another $288 million of unlimited-tax GO bonds that also feature a fourth lien on state aid.
Together the three issues total $975 million in new debt.
The council's resolutions did not include details of timing or finance teams, though Miller, Canfield, Paddock and Stone PLC is likely to act as bond counsel on the deals.
Detroit would use proceeds from the $632 million LTGO deal to finance settlements with the city's retirees, a few other unsecured creditors, and possibly its pension certificates holders if a settlement is reached.
Roughly $218 million of proceeds from the $632 million would be used for a voluntary employee beneficiary association retiree health care fund for the city's general employees and $232 million would go to a police and fire VEBA. The VEBAs are funds for other post-employment retirement benefits to retirees, who agreed to the OPEB cuts as part of the city's plan of debt adjustment.
Another $34 million of the deal would go toward holders of Downtown Development Authority claims.
Documents outlining the borrowings say the city will pay an interest rate of 4% for the first 20 years and 6% through the final 10-year life of the debt.
The city also wants to issue $55 million of LTGO bonds to pay the settlement it reached with holders of its outstanding LTGO bonds, who will receive 34% of their outstanding claims.
As LTGOs, all the bonds are payable as a first budget obligation from the city's general fund and, if that's not sufficient, from the proceeds of a property tax levy.
The council also approved a $288 million bond sale to finance the settlement with the city's unlimited-tax GO holders. This debt will feature Detroit's unlimited-tax general obligation pledge as well as a fourth lien on state aid. As required under the ULTGO settlement, the city will also treat the bonds as secured, dropping its original proposal to treat its unlimited-tax GO debt as unsecured.
The Michigan Finance Authority is expected to act as the conduit for the $288 million deal. The settlement calls for ULTGO holders to receive 74 cents on the dollar.
More than 90% of the ULTGO bonds are insured by Ambac Assurance Co., Assured Guaranty, and National Public Finance Guarantee Co.