Joseph Krist
Municipal Credit Consultant

DETROIT BANKRUPTCY MOVES INTO HOME STRETCH

The City and its remaining holdout creditors used this week’s hiatus in the proceedings to reach tentative settlements of the major remaining objections to the City’s Plan of Remediation. Settlements were announced by FGIC and the City on its claims associated with pension bonds issued by City-related entities. FGIC and the bondholders will get $141 million in new notes but will also receive some nine acres of riverfront property currently occupied by the Joe Louis Arena, home of the City’s NHL Red Wings. Bond insurers and bondholders will have an option to put a hotel and retail development on the site after demolition of “the Joe” in 2017. The demolition will be financed by the State. Bondholders include funds managed by Aurelius Capital Management and BlueMountain Capital Management. FGIC said that the settlement ” provides FGIC a recovery consistent with other Class 9 creditors. FGIC has always been, and continues to be, believers in Detroit’s long-term revival prospects, and this deal gives us the opportunity to participate in and help catalyze that revival.”

The City also announced a settlement with the Macomb County Interceptor Drainage District. The District settled its claim for $22 million. The District and FGIC were essentially the last institutional objectors to the Plan. Remaining objectors to the Plan of Remediation are some individual investors, residents, and pensioners. Their objections were being heard by the bankruptcy judge as we went to press. An additional hearing is scheduled for the next week in the trial on the Plan which resumed today. A decision on the feasibility of the Plan from Judge Rhodes could be expected soon thereafter.

REFUNDING TO BOLSTER CA. TOLL ROAD CREDIT

Next week, the San Joaquin Hills Toll Corridor Agency (TCA) is scheduled to market $1.35 billion of refunding bonds to finance the restructuring of the TCA’s debt and relieve some of the pressure to raise tolls to maintain debt service coverage and stabilize the TCA’s credit ratings. The TCA’s Orange County toll facilities have consistently underperformed in terms of usage and revenue since their opening in the mid 1990’s. This has led to lower than projected coverage and concerns that revenues would be inadequate to meet sum sufficient rate covenant and coverage requirements. This reflects the TCA’s generally ascending debt service schedule which requires sustained growth in available revenues.

Last week S&P announced that it raised its rating to BBB- from BB- on the TCA’s outstanding 1993 and 1997 toll road revenue bonds and assigned the same rating with a stable outlook to the proposed senior refunding bonds. A ‘BB+’ rating was assigned to the junior lien portion of the proposed issue. The planned restructured debt service schedule increases from approximately $107 million in 2016 to an approximate peak of $210 million in 2042. Restructured maximum annual debt service (MADS) is significantly lower than the previous MADS of approximately $270 million, and the annual rate of growth in debt service from 2016 to 2026, averages approximately 2.3%. The restructuring extends the final maturity from 2042 to 2050. This is typical of many such past restructurings.

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