CHICAGO — Detroit plans to refinance as early as Tuesday $1.5 billion of water and sewer bonds that investors tendered at the city's request.
Detroit Water and Sewerage Department commissioners announced the decision after a special Friday meeting, according to local reports.
The refinancing plan is part of Detroit's effort to exit Chapter 9 bankruptcy, and the deal still needs approval from the bankruptcy court. A hearing on the financing is scheduled Monday.
Water and sewer officials said Friday the city could achieve up to $240 million in interest-rate savings on the $1.5 billion that was tendered, even though it represents only 28% of the $5.2 billion the district was hoping to refinance.
Detroit, aided by Citi, senior manager on the refinancing, launched the tender offer program on Aug. 7 and gave investors until Aug. 21.
The city will also refinance a chunk of currently callable DWSD bonds and $190 million of new-money debt, as early as Tuesday.
The bonds that are not tendered will continue to receive scheduled principal and interest payments, according to Fitch Ratings. That provision is part of the reason the ratings agency said it does not consider the tender offer a distressed debt exchange.
Not all muni experts agree with Fitch. Municipal Market Advisors has called the tender "another way for Detroit to default."
The tender offer and program were devised as an alternative to the city's current bankruptcy plan for the revenue bonds, which calls for the impairment of nearly 50% of the debt by either stripping out call protection or replacing the current coupon with a lower interest rate. The program offered a variety of fixed prices, most of which were over 100 cents on the dollar.
If the refinancing is completed and holders of the tendered bonds paid off, the city said it will amend its plan of debt adjustment and treat all the debt as unimpaired, with the untendered bonds continuing to get the scheduled principal and interest payments.
A possible deal on a long-stalled proposal to create a new regional authority to run the water and sewer department could still impact the plan. Bond documents for the new debt being issued in the refinancing stipulate that investors in the new bonds will agree to any new ownership as part of their investment.
As of mid-Friday, the finance team had yet to fill in key areas in preliminary bond documents, such as the size of the issue and the maturities. The debt will be a mix of term and serial bonds.
It could include up to 11 series, seven senior- and four second-lien bonds. Several of the series are expected to carry insurance from Assured Guaranty Inc., which will also insure reserve accounts for certain series.
In addition to senior manager Citi, Barclays, JP Morgan, Loop Capital Markets, PNC Capital Markets LLC, BMO Capital Markets, Comerica Securities Inc. and Jeffries are also on the deal. Dickinson Wright PLLC is bond counsel. First Southwest is the financial advisor.
Bond documents also warn several times that Detroit is at risk of filing Chapter 9 again. In that case, according to the city, the water and sewer bonds are subject to extraordinary optional redemption at par.