Detroit City Council Signs Off Bonds to Finance Debt Settlements

by San Antonio Attorney

Four bond issues were signed off by the Detroit City Council in order to get cash and pay some of the city’s creditors. This is probably how the city is going to fund its bankruptcy exit plan as well.

The council approved the public auction or privatization $5.5 billion of sewer and water revenue replacing bonds to finance the tender of existing bonds and generate more money for upgrades.

The city council also authorized financial recovery bonds worth $632 million. It is secured by Detroit’s limited-tax general obligation bond, making the bonds repayment a top priority for city’s budget.

The cash proceeds will go to some unsecured creditors, such as the voluntary employee beneficiary association (VEBA) healthcare plan for retired city workers, VEBA for firefighters and police personnel, and the Downtown Development Authority.

Detroit had negotiated with various retiree organizations and others in order to get their permission for the city’s restructuring plan to shed off some of its $18 billion debt.

There are two more bond sales to be made in order to fund settlement deals with creditors of certain limited-tax bonds and unlimited-tax bonds. The limited-tax bonds creditors would get 74 percent, whereas the limited-tax bonds creditors are set to receive 34 percent of their investments.

Detroit filed for Chapter 9 bankruptcy in July 2013. It was unable to pay around $500 million of general obligation bonds it regarded as unsecured debt, which includes bonds secured by a particular property tax levy supported by city voters. Part of its bankruptcy plan is to cut pension benefits to city employees and retirees.

U.S. Bankruptcy Judge Steven Rhodes has scheduled a hearing on Aug. 29 to determine whether Detroit’s plan should be confirmed, so that the city can emerge from bankruptcy and pay the settlements.

 

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