Bond Markets

  • Friday’s Filings: Creditors object to bankruptcy proceedings

    The last day of February was the deadline for creditors to object to the ambitious schedule set by Bankruptcy Judge Steven Rhodes for Detroit’s case. And object they did.

    Reuters reports that one creditor, Syncora Guarantee Inc. “warned that lawsuits will be filed over the Detroit Institute of Arts’ collection, which the city is not selling at this point to help pay its $18 billion in debt.” In its filing, Syncora also threatened a long legal battle over the Detroit Institute of Arts collection, according to The Detroit News.

    While all that was going on in federal court, the city was mailing ballots to 170,000 creditors, the Detroit Free Press reports, seeking their approval on the Plan of Adjustment filed Feb. 21 and how it would restructure the city’s debt.

    Also Friday, citing the millions of dollars it would cost the city, Judge Rhodes  granted the city’s request to disband a creditors committee, set up by the U.S. Trustee in December. The panel included bond insurer Financial Guaranty Insurance Co and the city’s two pension systems.

    Earlier this week, our Detroit Journalism Cooperative partner through New Michigan Media, The Michigan Citizen, analyzed the Plan of Adjustment finding:

    Activists say what is most significant in Orr’s plan is the transfer of assets, which includes Belle Isle, the Detroit Institute of Arts and Detroit’s Water and Sewerage department. The plan protects the banks, but does little to adequately improve city services or improve quality of life for Detroit residents.




  • Tuesday’s Dispatches: A collection of bankruptcy readings

    Journalists and analysts around the country continue to dissect Detroit’s Plan of Adjustment and Disclosure Statement. Here is a collection of articles and posts about what some of the possible ramifications are on issues ranging from the city’s technology systems to pension fund disclosures to bond markets.

    Reuters reports that Fitch Ratings finds the plan “hostile” for bond holders. “Fitch expects that this disregard for the rights of bondholders will factor into higher borrowing costs for local issuers, and ultimately for local property taxpayers, in Michigan.” Fitch sold the city $1.45 billion certificates of participation (COPS) for pension payments the 2005 and 2006, the subject of a city lawsuit filed last month.

    Technology upgrades for police and better information systems for record keeping across city departments are part of the $150 million provision in Detroit’s Plan of Adjustment. The Detroit Free Press reports the investment could be returned threefold, as explained by Charles Moore, a city restructuring consultant with Conway MacKenzie. “This is better collection practices, improved pricing for fees, permits and licenses, and all of this is enabled by improved technology,” Moore says.

    In its “Revenge of the 99 %” article, The Economist collects reactions from the bond markets to Detroit’s Plan of Adjustment and analyzes what it all means. But the author warns against too much sympathy for the bond insurers, who are looking at a mere 20 percent payout under the city’s Plan of Adjustment.  “Another reason not to shed any tears for Detroit’s bondholders—despite their raw deal—is that it was their disastrous restructuring of the city’s pension debt in 2005 that became a key factor in driving the city to bankruptcy,” he writes.

    Meanwhile, the Society of Actuaries, a professional association of risk experts, is calling for openness and transparency by Detroit’s pension funds, as reported by The New York Times DealB%k. The group argues for the release of the fair value of pension obligations and estimates of the annual cash outlays needed to cover them. “We think it would be a useful benchmark for plans to have,” said Robert W. Stein, the panel’s chairman, who is both an actuary and a certified public accountant. “We’re optimistic that the information would enable them to better appreciate the future and what it might bring.” Will Detroit’s pension funds change their course of resistance to such disclosure? And what are the implications of the release of such information?

    -By WDET’s Sandra Svoboda

    @WDETSandra and 







  • Five Things to Read Monday Morning

    From pensioners and poverty to municipal bond markets and the mighty backlash, national and local media offered up some thought-provoking reading over the weekend after Detroit filed its Plan of Adjustment and Disclosure Statement Feb. 21.

    Here are five readings we thought worth sharing:

    Detroit residents who work outside the city limits could find themselves paying income tax they owe to the city under a measure Emergency Manager Kevyn Orr slipped into Friday’s filings. The Detroit News reports on what it would take at the state level to collect the estimated $140 million that’s missing from the city’s coffers.

    Religion and Ethics Newsweekly weighed in focusing on the effects on pensioners and the role the religious community has (hasn’t?) played in the bankruptcy’s aftermath. “Detroit is a city where people desperately need hope.”

    Bloomberg reported “The filing opens a new, potentially more contentious phase of the biggest U.S. municipal bankruptcy” in its article examining how the Plan of Adjustment relies on creditor settlements.

    CNBC focused on bond insurers and the backlash to the Plan of Adjustment, finding “investors directly in the line of fire made clear Friday they were braced for a legal battle.”

    The New York Times looked to post-Katrina New Orleans for lessons Detroit could learn from, writing “The scale of the two cities and the nature of their calamities differ, but Detroit can learn from New Orleans, where a fix that appeared rational to some experts and civic leaders was thrown aside for a way forward that has been slower and messier but politically more palatable and, many here believe, fairer.”






  • Views from the Courthouse: Our “docket” of coverage

    The media room at the Theodore Levin U.S. Courthouse in Detroit was crowded Wednesday as Bankruptcy Judge Steven Rhodes heard arguments about whether the city may treat its unlimited-tax, general obligation bonds as unsecured during the bankruptcy process. At issues is hundreds of millions of dollars the city could use for services for residents instead of paying interest to bond financiers, to put it simply. But wiping away the debt, if that occurs, would send shockwaves through the $4 trillion municipal bond market.

    During the nearly six hours of testimony, six attorneys for the bond insurers argued Michigan law dictates that funds raised from voter-approved bonds should be considered something of a “lien” and used only to pay off debt service for the bonds. Detroit’s attorneys, from the Jones Day law firm, argued federal bankruptcy law prescribes the funds are unsecured and that the bond issuers are like any other creditor.

    Judge Rhodes, who said he would have a decision within two or three weeks, ended the day by urging continued mediation. “A decision here is most likely all or nothing,” he said. “One side is going to win and the other side is going to lose.”

    Before the hearing, city attorneys told Judge Rhodes they had reached a deal with two global banks UBS and Bank of America Merrill Lynch for a “swaps settlement” on debt from pension funding. Rhodes has twice rejected previous deals, calling them too generous for the banks. City attorneys said they submit details to the court within three or four days.

    The Detroit Free Press’s Nathan Bomey published this article, which is a comprehensive update of where bankruptcy dealings are to date.

    And here are various other articles and stories published and broadcast about the day in court.

    From The Bond Buyer: Detroit judge hears challenge to ULTGO treatment

    From Reuters: Detroit bankruptcy judge urges settlement in bond dispute

    From WDIV: Detroit Bankruptcy: Which creditors get paid first?

    From The Detroit News: Judge expects to rule on bondholder payments in a few weeks, urges negotiations




  • Setting Precedent: Will some Detroit debt be considered ‘unsecured?’

    Does Detroit’s bankruptcy filing mean the city can consider some of its bondholders “unsecured creditors” for the purposes of lowering payments on debt as Chapter 9 restructuring and adjustment plans move forward?

    That question, and others, will be argued today before bankruptcy Judge Steven Rhodes in a scheduled 10 a.m. hearing. Detroit Emergency Manager Kevyn Orr wants to classify as “unsecured” the general obligation bondholders. That would include those backing the debts for infrastructure projects that were paid with voter-approved taxes.

    Like everything in Detroit’s bankruptcy filing, the legal questions have far-reaching implications for the municipal bond market and other financially challenged municipalities.

    “We’re more or less in uncharted territory,” says John Mousseau, executive vice president and director of fixed income and a municipal bond portfolio manager at Cumberland Advisors in Sarasota, Fla. He spoke at an American Enterprise Institute event this week that looked at the Detroit bankruptcy’s impact on a range of issues including pensions, bond markets and private-public partnerships.


    -By WDET’s Sandra Svoboda


    @WDETSandra and 



  • Early Legacy: Impact already felt in Detroit’s bankruptcy

    The city’s bankruptcy filing and resulting legal tangles, mediation and early restructuring discussions have already had an impact on business practices, legal structures, general obligation bonds and public pensions, the Detroit Free Press reports today.

    Reporter Nathan Bomey examines four ways Wall Street is changing because of Detroit’s dynamics. “Wall Street is quickly changing how it views municipal debt in the midst of the largest municipal bankruptcy in U.S. history,” he writes. Detroit “could uproot traditional financial principles about investing in public bonds, once thought to be rock-solid debt.”