Report reveals 34 pct recovery for Detroit limited-tax GO bonds

July 10 Thu Jul 10, 2014 3:40pm EDT

July 10 (Reuters) - Holders of Detroit's $164 million of unsecured, limited-tax general obligation bonds would only get 34 percent of their investment back under the city's debt adjustment plan, according to a consultant's report released on Thursday.

The 34 percent recovery listed in the July 8 report by Kenneth Buckfire, president of restructuring firm Miller Buckfire & Co, is higher than the estimated 10 percent to 13 percent rate Detroit outlined in its latest plan to adjust $18 billion of debt and exit bankruptcy. (Buckfire report: reut.rs/1lXIZOB)

But the rate is lower than the 74 percent recovery on $388 million of unsecured unlimited-tax GO bonds, which are backed by voter-approved property taxes.

Last month, federal court mediators announced a settlement over the treatment of the limited-tax bonds in Detroit's historic bankruptcy case, but disclosed no details. The announcement followed a mediation session between the city, Ambac Assurance Corp, which guarantees payments on most of the bonds, and mutual fund BlackRock Financial Management.

The Miller Buckfire report includes a chart of claim reductions Detroit is seeking as it makes its way through the biggest municipal bankruptcy in U.S. history. Holders of $1.47 billion of certificates of participation the city sold in 2005 and 2006 to fund public pensions would recover only 11 percent of their investment.

Apart from outstanding bonds, Detroit's $3.13 billion pension liability would shrink by 54 percent and its $4.3 billion liability for retiree health care would be cut by 89 percent.

The city has offered its retirees a so-called grand bargain, funded by $466 million from philanthropic foundations and the Detroit Institute of Arts and $195 million from the state of Michigan, to ease pension cuts and prevent a sale of art work to pay creditors. Thousands of retirees and other city creditors must vote on the plan by Friday.

The report, which outlines topics Buckfire will address in court testimony, said the city should have "access to the capital markets in the near term on reasonable terms" and it is already soliciting exit financing.

Buckfire based that conclusion on preliminary discussions with potential underwriters and the significant amount of liabilities the city would shed under its debt adjustment plan, according to the report.

He will also testify that creditors will receive better treatment under the plan than if the bankruptcy case were dismissed. A dismissal would block Detroit's access to the capital markets and lead to a slew of creditor lawsuits, the report said.

It also noted that while Miller Buckfire receives a $300,000 monthly fee from the city for advisory services, the firm will get a $28 million restructuring fee once Detroit's debt is recapitalized or restructured.

U.S. Bankruptcy Judge Steven Rhodes will begin a hearing on the plan's fairness and feasibility on Aug. 14. (Reporting by Karen Pierog in Chicago; Editing by Lisa Shumaker)

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