Friday, August 22, 2014

Proposed DWSD Bond Refinancing Deal in Preparation For Privatization
Detroit Freedom Friday demonstration on Aug. 8, 2014.
8:12 PM, August 22, 2014
By Matt Helms
Detroit Free Press Staff Writer

The board of Detroit’s Water and Sewerage Department voted today to accept all offers to buy back nearly $1.5 billion in bonds in a bid to significantly reduce the amount the agency pays out in debt service — a deal that could save as much as $241 million.

The board voted overwhelmingly to accept the bond buyback – called a tender offer — that officials said was taken up by more than 6,200 creditors out of more than 48,000 institutional and individual investors who own the bonds. The water department issued the bonds over the years to pay to build and repair its sprawling infrastructure.

“This is a home run,” water commissioner board Chairman James Fausone said after the vote.

The voluntary tender offer emerged from confidential mediation efforts in Detroit’s bankruptcy, giving creditors a chance to return the bonds and face less of a potential impairment forced on them as the confirmation hearings on the city’s bankruptcy exit plan begin Sept. 2.

The offer must still be approved by emergency manager Kevyn Orr and U.S. Bankruptcy Judge Steven Rhodes, who’s overseeing Detroit’s historic $18-billion bankruptcy. If approved, the department would then replace those bonds with new ones at lower interest rates.

Mediators said the tender offer was made to all of the holders of $5.2 billion in water and sewer bonds, but consultants told the board that program targeted about $2.2 billion of those bonds — mostly those whose owners risked lower interest payments long term.

“There’s substantial relief in each of the next 19 years of over $11 million” annually, Tom Green, a consultant from the global bankCitigroup, told commissioners.

Another adviser to the water department, Lee Donner of First Southwest, said that the department and its consultants have been meeting with bond-rating agencies to help rebuild confidence in the Detroit water department’s bond strategy.

Fausone said the hope is that Moody’s, Standard & Poor and Fitch could, as early as Monday, return the DWSD to investment-grade level, a status it lost amid downgrades after Detroit’s largest-ever Chapter 9 filing in July 2013. The higher credit rating would allow the department to borrow at lower interest rates, resulting in the long-term savings it could devote to fixing the badly aging system and possibly lowering rates for the department’s more than 4 million customers in southeast Michigan.

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