Additional Tier 1 market poised for revival

By Helene Durand and Anna Brunetti

Fri Aug 29, 2014 9:09am EDT

LONDON, Aug 29 (IFR) - Banco Santander and UniCredit will provide the first test of investor appetite for Additional Tier 1 debt in Europe after the asset class was buffeted by serious headwinds during the summer months.

Banks have not tapped the European AT1 market since a triple-tranche 3.5bn-equivalent deal from Deutsche Bank in mid-May when demand for the product was still strong.

However, since then, banks' subordinated debt and AT1 in particular has been hit by volatility with cash prices yo-yoing five to six points from week to week. Banco Popular Espanol was one of the victims and had to pull a transaction in early July.

Meanwhile, the Banco Espirito saga, which saw the bank's subordinated debt left in the bad bank following its restructuring, acted as a reminder of the depth of losses investors can be exposed to, while the lack of secondary liquidity amplified some of the moves.

The market has since recovered and bankers believe that the backdrop to sell AT1 has improved markedly.

"The BES situation had a massive impact on the market initially but it has since recovered and has been to compartmentalise the situation and it was not a point of contagion," said a syndicate banker. "We have had three/four months of no supply and there is a lot of cash to be put to work."

Banco Santander, rated Baa2/BBB/BBB+, mandated Credit Suisse, HSBC, JP Morgan, its own syndicate team, Societe Generale and UBS, and is expected to go first.

The issuer is planning a one-day roadshow on Monday and execution is expected the following day.

Meanwhile, UniCredit, rated Baa2/BBB/BBB+, which mandated Bank of America Merrill Lynch, CA-CIB, Credit Suisse, Deutsche Bank and UniCredit, will see investors over two days with pricing expected for Wednesday.

"It'll be certainly interesting to see how that will work," another syndicate banker said.

"It's likely that the market is strong enough at present to take both deals, so we expect them to be complementary rather than competing."

RARITY VALUE

It will be UniCredit's first euro-denominated AT1, following the launch of a US$1.25bn perpetual non-call 10-year that priced with an 8% coupon in March.

"There is serious rarity value in Italy and I would expect UniCredit to benefit from that," the banker said.

UniCredit's dollar issue is the only outstanding Additional Tier 1 deal from an Italian bank. That transaction was quoted at a cash price of 105 on Friday, giving a 7.3% yield and spread of 495bp over swaps.

Santander will not benefit from the same rarity value given two previous issues in the format, while BBVA has also tapped both dollars and euros.

Santander's euro note priced at a yield of 6.25% and has tightened to 5.86%, or a cash price of 102. The May dollar bond, which priced at 6.375%, has failed to perform so well, widening to 6.6% to trade at 99.3 according to Tradeweb.

The new deal is expected to mirror the structure of the previous euro bond, a syndicate official said, with the same low trigger of 5.125% for conversion into equity.

While UniCredit will have the same low 5.125% Common Equity Tier 1 trigger, it will have a temporary write-down structure - the first time that the two structures go head to head in the market.

"It might be a test of what investors prefer in terms of loss absorption mechanism but at the end of the day, technicals will dominate where the deals price, and they are very strong right now," said the first syndicate banker.

With pressure mounting for banks to shore up their capital beyond minimum requirements, the second syndicate official said that at least one more peripheral lender is poised to follow in the AT1 space in the next couple of months.

He also expects Irish and Portuguese lenders to come to the market with debut AT1 deals in 2015. (Reporting By Helene Durand, Anna Brunetti, Editing by Julian Baker)

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UPDATE 1-Court grants Saab carmaker NEVS creditor protection

Fri Aug 29, 2014 9:12am EDT

(Adds court decision, defence firm Saab's decision to recall NEVS right to use Saab brand)

STOCKHOLM Aug 29 (Reuters) - China's National Electric Vehicle Sweden (NEVS), which bought bankrupt carmaker Saab in 2012, won protection from creditors from a Swedish court on Friday while it concludes funding talks.

The decision gives the company, which has not built any cars since May because of a shortage of money, breathing space from creditors to whom it owes some 400 million Swedish crowns (57.56 million US dollar).

Separately, Saab AB, the defence firm from which Saab Automobile was created in 1990, added to loss-making NEVS' troubles on Friday by saying it had withdrawn its right to use the brand name Saab.

Swedish business daily Dagens Industri quoted a Saab AB spokesperson as saying a NEVS application for creditor protection gave Saab AB the right to cancel the brand agreement.

A spokesman for NEVS said it expected to be able to renegotiate the Saab brand agreement following a solution to its funding woes.

The court had rejected NEVS first application for creditor protection on Thursday. The company then filed a new application on Friday.

NEVS has been in talks with two unnamed car firms to secure additional money. It made a pretax loss of 601 million crowns on sales of 41 million last year, it said in its first application. (1 US dollar = 6.9494 Swedish crown) (Reporting by Sven Nordenstam and Johannes Hellstrom. Editing by Jane Merriman)

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Part of Espirito Santo empire may try to block sale of insurer

LISBON Fri Aug 29, 2014 1:38pm EDT

LISBON Aug 29 (Reuters) - Part of the troubled business empire of Portugal's Espirito Santo family said on Friday it may try to block the planned sale of an insurance company it once controlled, adding to opposition already expressed by a group of investors.

The challenges highlight the difficulties that bailed-out Banco Espirito Santo (BES) and its successor Novo Banco face as they try to recover some of the family's massive debts.

Luxembourg-registered Espirito Santo Financial Group (ESFG), a holding company that used to own insurer Tranquilidade and is now under creditor protection after defaulting on its debt, said in a statement the transfer of shares in Tranquilidade to Novo Banco - which is trying to sell the insurer - may be illegal.

It said it had not been notified of the execution of the transfer after the termination of a financing agreement, "and therefore concludes that it is still the owner of the shares". It added it was carrying out a full due diligence on the terms and conditions of a pledge it made to transfer the shares.

"ESFG thinks that the pledge may be illegal," it said.

Should the final conclusion of the due diligence confirm its preliminary view, "ESFG will legally react against the pledge of the shares, its execution and any sale of the same" that could be carried out by Novo Banco in the meantime, it said.

Once Portugal's largest listed lender, BES lost billions of euros from dealings with its Espirito Santo founding family. Regulators decided on Aug. 3 to put its healthy assets into a new entity, Novo Banco, and leave family borrowings, shareholders and junior creditors behind in BES.

Novo Banco's share of the spoils included Tranquilidade, a large Portuguese non-life insurer, and sources told Reuters last week that the new bank was close to sealing a 200 million euro ($264 million) deal to sell Tranquilidade to U.S. fund Apollo Global Management.

A Novo Banco spokesman said "the process of Tranquilidade's sale remains on course". The sale process started in early 2014 before the family financial problems became public knowledge.

Earlier, lawyers representing about 10 individual bondholders of Espirito Santo Financial (Portugal) (ESFP), who hold 12 percent of a 70 million euro bond issued in May 2013, said they were challenging Novo Banco's claim on Tranquilidade because it disadvantaged creditors of ESFP, which is the indirect owner of 45 percent of the insurer.

The shares in Tranquilidade were pledged to BES as a guarantee ESFG would make sure that BES retail clients who were sold about 2 billion euros of Espirito Santo debt would be repaid. ESFG is the 100 percent owner of ESFP, so it beneficially owned all of Tranquilidade.

BES could face similar challenges as it tries to secure repayment of 1.6 billion euros of borrowings by an array of companies related to Espirito Santo.

The complex structure of the Espirito Santo empire, which spanned from Panama and Luxembourg to Dubai, means there are dozens of borrower companies across different jurisdictions. (Reporting by Andrei Khalip and Laura Noonan; Editing by Mark Potter)

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U.S. bankruptcy judge sides with Momentive, rejects creditor objections

By Nick Brown

Tue Aug 26, 2014 6:38pm EDT

Aug 26 (Reuters) - A judge on Tuesday approved the bulk of Momentive Performance Materials' bankruptcy exit plan, rejecting creditor objections and pushing the quartz and silicone maker a step closer to cutting its debt by $3 billion.

In a four-hour-long ruling read in a White Plains, New York, courtroom, bankruptcy Judge Robert Drain stopped short of confirming the plan outright, rejecting the interest rate being offered to one creditor class.

A lawyer for Momentive said the company plans to present a revised version to Drain next month.

The ruling was an overall win for Momentive, which prevailed in creditor disputes that threatened to derail the plan.

Momentive, owned by Apollo Global Management, has been in Chapter 11 bankruptcy since April, with a contentious proposal to transfer control to a class of bondholders that also includes Apollo.

The bondholders would participate in a $600 million rights offering, while JPMorgan Chase & Co would supply a $1.3 billion loan.

The case was tense from the outset, with some creditors hinting in court papers that Apollo was getting a sweetheart deal that lets it hold onto equity despite the company's bankruptcy. Momentive in court papers called the deal "the culmination of arm's-length negotiations."

In an important piece of his ruling, Drain found it was fair for Momentive to wipe out a group of junior bondholders, led by U.S. Bank as trustee, who claimed they deserved recovery equal to the second-lien bondholders funding the rights offering. A win for U.S. Bank would have upended the plan and sent Momentive back to the drawing board.

The fight turned on the definition of senior debt. The U.S. Bank group's $382 million in debt is contractually junior to Momentive's "senior" debt, but equal to its non-senior debt.

The question was whether the second-lien bondholders could be considered "senior." Their debt is paid before or concurrently with all of Momentive's other debt, but their lien is junior to some other liens.

Siding with Momentive, Drain said liens merely secure debt, but "are not themselves debt." Thus, the second-liens are "senior" despite their junior lien, and their more desirable treatment under the plan is not unfair, he concluded.

Drain also nixed an objection from certain secured creditors who claimed they were entitled to extra premiums known as "make-whole" payments for the early redemption of their debt.

Those creditors, owed roughly $1 billion, are led by trustees Bank of Oklahoma and Wilmington Trust. Under a toggle provision, the plan would pay them in cash if they agreed to forgo the make-whole, and in the form of new notes if they objected.

The banks have asked permission to change their votes to accept the plan, ostensibly in hopes of receiving cash payouts. That request, which is opposed by Momentive, will be heard by Drain at a later date. (Editing by Grant McCool)

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Detroit's $1.8 bln refunding bonds priced in muni market

Tue Aug 26, 2014 7:34pm EDT

Aug 26 (Reuters) - Detroit completed the pricing on Tuesday of $1.8 billion of water and sewer refinancing bonds related to a tender offer aimed at dealing with a big chunk of the bankrupt city's debt.

A day after receiving approval from a federal judge overseeing its historic bankruptcy case, Detroit offered the bonds in the U.S. municipal market.

Underwriters led by Citigroup priced $937 million of sewage disposal system senior lien bonds with a top yield of 5.10 percent for term bonds subject to the alternative minimum tax and due in 2044. Yields on insured senior lien bonds topped out at 4.42 percent in 2033, while yields on insured second lien bonds had a top yield of 4.87 percent in 2036.

In a $855 million water supply system bond issue, yields topped out at 4.52 percent for insured senior lien bonds due in 2037. Uninsured senior lien bonds were priced to yield 4.73 percent in 2034, and yields on insured second lien bonds reached 4.87 percent in 2036. The majority of bonds in both issues carry 5 percent coupons.

Nicolette Bateson, chief financial officer of Detroit's water and sewerage department, said officials were "still churning through the process" and would not have any immediate comment on the transactions.

Detroit, which filed the biggest-ever U.S. municipal bankruptcy last year, launched a tender offer on Aug. 7 with the hope of getting enough of the debt back and replacing it with lower-cost bonds through a refinancing. Nearly $1.5 billion of the $5.2 billion of outstanding water and sewer bonds were returned for repurchase by a deadline last Thursday.

If the deals close as expected on Sept. 4, bonds that were not tendered will be paid under current terms.

In the absence of the tender, call protection would have been eliminated or interest rates would have been reduced on "impaired" outstanding water and sewer bonds under Detroit's debt adjustment plan. Those bonds make up about $2.2 billion of the $5.2 billion of existing debt.

The refinancings, which raised money to repurchase the tendered bonds and fund projects, were expected to cut annual debt service costs and result in savings projected at about $241 million over 26 years.

Detroit's treatment of bonds in the bankruptcy, including defaults on certain general obligation bonds and on $1.4 billion of pension debt, roiled the muni market and pushed the city's bond ratings deep into junk territory.

Ratings for the refunding bonds were raised with some still in the junk category and some investment grade.

Most of the bonds priced on Tuesday were insured by Assured Guaranty Municipal Corp or National Public Finance Guarantee Corp, lifting ratings well into investment grade.

The pricing of the bonds came just a week before a key hearing is to start on Detroit's plan to adjust $18 billion of debt. U.S. Bankruptcy Judge Steven Rhodes will determine if the plan is fair and feasible. (Reporting by Karen Pierog; editing by Andrew Hay)

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PRESS DIGEST- New York Times business news - Aug 27

Wed Aug 27, 2014 12:55am EDT

Aug 27 (Reuters) - The following are the top stories on the New York Times business pages. Reuters has not verified these stories and does not vouch for their accuracy.

* As Detroit prepares to defend its plan next week to exit bankruptcy, city leaders have received an unusual offer: Why not mortgage all the Van Goghs, Picassos and other works in the Detroit Institute of Arts? A company called Art Capital, which makes loans backed by artwork, has told the city it is willing to lend it up to $3 billion, roughly 10 times the exit financing Detroit is now contemplating, using the museum's art as collateral. But the city's response is silence. (nyti.ms/1tBtQtM)

* Allergan Inc, the Botox maker fending off a hostile takeover attempt by Valeant Pharmaceuticals International Inc and Pershing Square Capital Management, has set a date for a special meeting at which shareholders will have the opportunity to vote out a majority of the board. In a filing with the Delaware Chancery Court, Allergan said the meeting would take place on Dec. 18. (nyti.ms/1ryIcfQ)

* Google Inc announced Tuesday that it bought Boston-based Zync Inc, the maker of Zync Render, a "cloud-based rendering software." Google wouldn't say how much it paid for Zync. The company will integrate Zync's data and technology into the Google Cloud Platform, and move off Amazon.com Inc Web Services. (nyti.ms/1syGo2c)

* A cross-border fast-food deal has united Warren Buffett with one of his favorite investors. Buffett's conglomerate, Berkshire Hathaway, is helping finance Burger King Worldwide Inc's $11.4 billion takeover of the Canadian restaurant chain Tim Hortons Inc by buying $3 billion of preferred shares in the new company. (nyti.ms/XQVDee)

* Time Warner Inc's Turner Broadcasting System division said on Tuesday that it was offering buyouts to about 600 employees, the first step in an ambitious effort to overhaul a portfolio of cable networks that have struggled with declining ratings at a time of intense competition for viewers. Layoffs and additional cost-cutting measures will follow, according to an internal memo announcing the buyouts. (nyti.ms/YWQEsE)

* Volvo AB on Tuesday introduced its first vehicle designed and built under Chinese ownership. The vehicle, a seven-seat sport utility vehicle known as the XC90 that will go on sale in April, is probably a make-or-break model for Volvo. (nyti.ms/1qKeyxX)

* Michael Lucarelli, the director of market intelligence at Lippert/Heilshorn and Associates, was arrested and charged with 13 counts of insider trading for buying and selling stocks based on information in news releases his company had prepared for its clients, the Federal Bureau of Investigation and Preet Bharara, the United States attorney in Manhattan, said in a statement. (nyti.ms/1zBUTVN)

* The Swiss private bank Pictet Group reported its financial results publicly for the first time in its 209-year history on Tuesday, showing a profit and highlighting continuing changes in Switzerland's traditionally secretive banking culture. (nyti.ms/1tEZy8F)

* Governments should ban the use of electronic cigarettes in public places and outlaw tactics to lure young users, the World Health Organization said in a report released on Tuesday that calls for some of the toughest measures yet proposed for the increasingly popular devices. It also expressed "grave concern" about the growing role of the powerful tobacco industry in the e-cigarette market. (nyti.ms/1qsW1tG)

(Compiled by Rishika Sadam in Bangalore)

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US bankruptcy judge approves Detroit water/sewer bond plan

DETROIT Mon Aug 25, 2014 11:51am EDT

DETROIT Aug 25 (Reuters) - A U.S. bankruptcy court judge on Monday approved Detroit's proposal to repurchase nearly $1.5 billion of existing water and sewer revenue bonds tendered by investors and to refinance the debt to save money.

The ruling by Judge Steven Rhodes, who is overseeing Detroit's historic bankruptcy case, clears the way for the sale of about $1.8 billion of refunding bonds to pay for the tender and raise $162 million for new projects.

In testimony prior to Rhodes' ruling, Nicolette Bateson, chief financial officer of Detroit's water and sewerage department (DWSD), said the bonds would be sold in the municipal bond market on Tuesday with the deal's closing expected on Sept. 4. (Reporting By Peter Suciu in Detroit, additional reporting by Karen Pierog in Chicago; Editing by Chizu Nomiyama)

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Judge delays ruling on Momentive bankruptcy exit plan

By Nick Brown

Mon Aug 25, 2014 3:30pm EDT

Aug 25 (Reuters) - A judge on Monday delayed a ruling on whether to confirm a plan by Momentive Performance Materials, a quartz and silicone maker owned by Apollo Global Management, to cut $3 billion in debt and exit bankruptcy.

Judge Robert Drain, who had been expected to read his ruling from the bench on Monday, told parties in his White Plains, New York, courtroom that he would hold off until Tuesday as the company tries to resolve certain objections to its plan.

It was the second time Drain has postponed the ruling, which was initially expected last week.

Waterford, New York-based Momentive filed for Chapter 11 bankruptcy in April with an agreement to transfer control to a class of bondholders who would participate in a $600 million rights offering.

The key objection comes from more junior bondholders, led by U.S. Bank NA as trustee, who would recover nothing under the plan. Owed some $382 million, the group cannot be treated worse than the bondholders participating in the rights offering, U.S. Bank says.

Momentive has cited contract language pushing the U.S. Bank group's debt behind other creditors', but the bank claims the clause applies only to senior secured lenders, and that no other creditor group can stand ahead of it in the payback line.

Parties have acknowledged that a win for U.S. Bank on the issue would upend the restructuring and send Momentive back to the drawing board.

Drain's decision to delay his ruling was related to a separate objection from a group of secured lenders owed about $1 billion, who claimed they were entitled to extra premiums in exchange for early redemption of their bonds.

The lenders on Monday signaled a willingness to withdraw their objections, sparking Drain to give the parties another day to try to work out a resolution. He is now expected to rule on Tuesday afternoon. (Reporting by Nick Brown; Editing by Leslie Adler)

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UPDATE 2-U.S. bankruptcy judge approves Detroit water/sewer bond plan

Mon Aug 25, 2014 4:34pm EDT

(Adds details of bond sale, Syncora objection, comments from Kevyn Orr, fund manager)

DETROIT Aug 25 (Reuters) - A U.S. bankruptcy court judge on Monday approved Detroit's proposal to repurchase nearly $1.5 billion of existing water and sewer revenue bonds tendered by investors and to refinance the debt to save money.

The ruling by Judge Steven Rhodes, who is overseeing Detroit's historic bankruptcy case, clears the way for the sale of about $1.8 billion of refunding bonds to pay for the tender and raise $162 million for new projects.

Treatment of the city's $5.2 billion of outstanding water and sewer bonds was a big hole in Detroit's plan to adjust $18 billion of debt after most investors in those bonds rejected the plan earlier this summer.

Detroit, which filed the biggest-ever U.S. municipal bankruptcy last year, launched a tender offer on Aug. 7 with the hope of getting enough of the debt back and replacing it with lower-cost bonds through a refinancing. Nearly $1.5 billion of the bonds were returned for repurchase by Thursday's deadline.

In testimony prior to Rhodes' ruling, Nicolette Bateson, chief financial officer of Detroit's water and sewerage department, said the refinancing bonds would be sold in the municipal bond market on Tuesday, with the deal's closing expected on Sept. 4.

Heather Lennox, a Jones Day attorney representing Detroit, told the judge that if the deal closes, the water and sewer bonds that were not tendered will be unimpaired in the city's debt adjustment plan.

In the absence of the tender, call protection would have been eliminated or interest rates would be reduced on "impaired" outstanding water and sewer bonds under the plan. Those bonds make up about $2.2 billion of the existing $5.2 billion of debt.

The refinancing bonds will be issued through the Michigan Finance Authority and priced in two deals by lead underwriter Citigroup.

This is a good deal for the city for several reasons," Kevyn Orr, Detroit's emergency manager, testified on Monday. "It provides money to the city that can reduce the debt. It will also provide a settlement with the bondholders."

Four insurance companies that guaranteed payments on the bonds agreed to the deal. Objections by hold-out creditor Syncora Guarantee Inc were rejected when the judge agreed with the city that the bond insurer lacked standing because it does not insure nor own any of the bonds.

Detroit expects the refinancing will cut annual debt service costs and result in savings projected at about $241 million over 26 years. While the current water and sewer bonds are rated junk, the city hopes the refinancing bonds will be rated higher and plans to insure some of the debt.

Detroit's treatment of bonds in the bankruptcy, which includes defaults on certain general obligation bonds and on $1.4 billion of pension debt, which it also seeks to void, has roiled the muni market.

Dan Solender, head of municipal investments at Lord Abbett & Co, said it was unclear who the buyers of the refunding bonds might be, although non-traditional investors like hedge funds may participate in the deals.

"The question is, 'What is the penalty for the way (the city) treated bondholders?'" he said.

On Sept. 2, the judge will commence a hearing to determine if the city's debt adjustment plan is fair and feasible. (Reporting by Peter Suciu in Detroit, additional reporting by Karen Pierog in Chicago; Editing by Chizu Nomiyama and Dan Grebler)

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Energy Future judge appoints committee to review lawyer fees

By Nick Brown

Fri Aug 22, 2014 4:12pm EDT

Aug 22 (Reuters) - The judge overseeing Energy Future Holdings' massive bankruptcy appointed a committee to review the fees of lawyers and other professionals in the case.

Law firm Godfrey & Kahn, which advised a fee committee in the bankruptcy of Lehman Brothers, the largest and most expensive Chapter 11 filing in history, will advise a similar four-member committee in Energy Future's case, according to an order signed by Judge Christopher Sontchi on Thursday in U.S. Bankruptcy Court in Delaware.

Energy Future, the former TXU Corp, declared bankruptcy in April to restructure more than $40 billion in debt, making it among the largest-ever Chapter 11 cases. The army of financial advisers and high-priced, specialized restructuring lawyers from top-level firms like Kirkland & Ellis and Morrison & Foerster will make the case an expensive one.

Energy Future's estate will also be responsible for the fees of its official creditors' committee, and potentially other creditor factions.

In bankruptcy, where the goal is to maximize recoveries for creditors, professional bills are publicly filed, heavily scrutinized and subject to court approval.

The most sought-after bankruptcy lawyers charge more than $1,000 an hour, sometimes creating a perception in restructuring circles that lawyers have no incentive to move cases along quickly. The U.S. Trustee Program, the Justice Department's bankruptcy watchdog, rolled out new guidelines last year for how lawyers in big bankruptcy cases should report their fees to courts.

It is common practice in large and complex cases like Energy Future's to appoint a committee or examiner to review monthly fee statements, work with parties to reduce costs, make recommendations to judges on whether to approve fees and object to fees they believe are unnecessary.

Energy Future's committee will include four members: one each chosen by the company, its creditors' committee and the U.S. Trustee, and one independent member. (Reporting by Nick Brown; Editing by Dan Grebler)

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UPDATE 2-Detroit water board OKs repurchase of $1.5 bln tendered bonds

Fri Aug 22, 2014 8:29pm EDT

(Adds comments from Detroit water/sewer officials, details on potential bond refinancing)

DETROIT Aug 22 (Reuters) - The Detroit Board of Water Commissioners agreed on Friday to repurchase nearly $1.5 billion of water and sewer revenue bonds tendered by investors by a deadline on Thursday.

Detroit, which filed the biggest-ever municipal bankruptcy last year, launched the tender offer on Aug. 7 with the hope of getting back enough of the $5.2 billion of outstanding debt through a tender offer and replacing it with lower-cost bonds through a refinancing.

Pending approval from U.S. Bankruptcy Court, about $1.8 billion of refinancing bonds would be sold in the municipal bond market on Tuesday, according to Nicolette Bateson, chief financial officer of Detroit's water and sewerage department (DWSD).

The debt refunding will raise money to pay for the tendered bonds, as well as $162 million for construction projects, she said, adding that savings from the refinancing are projected at about $241 million over 26 years.

Detroit turned to the tender offer after most water and sewer bondholders rejected the city's plan to adjust $18 billion of debt in voting this summer.

DWSD Director Sue McCormick said the voluntary bond tender offer accomplished two goals.

"The first was to execute a tender/refinancing transaction that achieved meaningful dollar savings for our customers," she said in a statement. "The second was to seek an open market alternative to the impairment in the city of Detroit's plan of adjustment."

If the tender is accomplished, any remaining bonds that were not tendered would continue to be paid by the city under existing terms.

If it fails to be completed, call protection would be eliminated or interest rates would be reduced on "impaired" outstanding water and sewer bonds under the debt adjustment plan. Those bonds make up about $2.2 billion of the existing $5.2 billion of debt.

Judge Steven Rhodes, who is overseeing the city's bankruptcy case, will take up the city's motion for the court to approve the bond tender at a hearing on Monday. On Sept. 2, the judge will commence a key hearing to determine if the city's debt adjustment plan is fair and feasible.

The refinancing bonds would be issued through the Michigan Finance Authority and priced by lead underwriter Citigroup. Detroit has set a Sept. 4 closing date for the deal.

The DWSD said it plans to pursue future refinancings of more than $1 billion of bonds that become callable within the next two years. (Reporting by Peter Suciu in Detroit; Additional reporting by Karen Pierog in Chicago; Editing by Meredith Mazzilli, Leslie Adler and Ken Wills)

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RPT-CBA targets retail for bond hybrid sale

Sun Aug 24, 2014 7:30pm EDT

(Repeats story published late Friday; no changes to text)

* CBA to sell high-risk benchmark hybrid bond to retail investors

* Jumbo AT1 to come after UK bans banks from selling to retail

* Securities regulator warns of potential risks

By John Weavers

LONDON, Aug 22 (IFR) - Australia's biggest bank is pressing ahead with plans to offer complex hybrid capital securities to retail buyers even after the UK regulator deemed the format too risky for individual investors.

Commonwealth Bank of Australia announced a A$2bn (US$1.86bn) retail-targeted Additional Tier 1 hybrid offering on Monday, less than two weeks after the UK announced a one-year ban on the sale of similar securities to retail investors.

Earlier this month, the UK's Financial Conduct Authority said it would stop banks from selling "risky and highly complex" contingent convertible instruments to the mass retail market, while still allowing access for experienced investors.

European banking regulators also issued a stern warning at the end of July, reminding banks to avoid conflicts of interest when selling their own capital notes to clients.

CBA's issue of perpetual subordinated CommBank PERLS VII capital notes raises the awkward question of whether Australian retail investors are considered to be more knowledgeable or more gullible than their British counterparts.

"A lot can happen during the lifetime of PERLS VII, which are not callable for over eight years," said Philip Bayley, principal at ADCM Services.

"No one saw the global financial crisis coming, while Royal Bank of Scotland was one of the world's largest banks just before it was rescued from bankruptcy."

The Australian Securities and Investment Commission (ASIC) has consistently warned investors of the dangers of hybrid securities, without any notable impact on demand.

Unlike the FCA, ASIC currently has no banning powers, leaving any such move in the government's hands.

"ASIC is focused on the sale of hybrids to retail investors and a big reason for this is the potential for misleading conduct - for example, when promoters spruik the returns of hybrids without being upfront about the risks," Matthew Abbott, senior executive leader for corporate affairs at ASIC, told IFR.

"To date, we have found some promotional material that did not include a balanced disclosure of features and risks. In particular, issues we identified include inadequate disclosure of risk, disclaimers that were not sufficiently prominent, hybrids being referred to as stocks or shares, and hybrids being classified as fixed income in a way that may be misleading," Abbott said.

RECORD SIZE

CBA's capital raising is for an indicative A$2bn, matching the size of the PERLS V notes that are callable in October.

Such offerings are typically substantially increased and anything over A$2bn would set a record in the Australian hybrid market. PERLS VII are rated BBB by S&P, five notches below the bank's senior unsecured rating of AA-.

Australian hybrids rely heavily on local retail demand as they pay a franked, or after-tax, coupon that entitles investors to tax credits when they file individual returns.

Australia's army of high-net-worth individuals and self-managed superannuation funds have been enthusiastic buyers, allowing banks to raise funds at rates far lower than in the institutional market.

There are some differences between the Australian and UK systems. For example, CBA is required to pay the coupon on the AT1 notes before it pays a dividend to common equity holders, an investor-friendly feature that is not allowed in the UK.

However, the issue facing regulators is the same: retail investors may focus on the issuer's name and headline returns without fully understanding the greater risks associated with loss-absorbing capital securities.

PERLS VII and other Basel III-compliant Tier 1 issues include a "non-viability trigger event", under which the notes will convert into ordinary shares if the Australian Prudential Regulation Authority declares the bank to be no longer viable. The notes also include a common equity trigger, whereby they will convert into ordinary shares if the bank's common equity capital ratio falls to 5.125% or below.

CBA is very well capitalised with a common equity capital ratio of 9.3% as of June 30, up from 8.3% a year earlier. Such a strong capital position, as well as a Double A credit rating, provides considerable comfort to hybrid investors.

Many buyers expect the government to step in to prevent ANZ, CBA, NAB and Westpac from going bust, but this does not necessarily mean hybrid holdings are safe as they could convert into equity when a bank is still a going-concern.

LOWER YIELD

Existing investors that roll over their PERLS Vs into PERLS VIIs will have to accept a lower return since PERLS Vs pay a margin of 340bp over three-month BBSW. Guidance for the new notes is set at a spread of 280bp-300bp over.

Assuming the margin is set at the low end of guidance and with local three-month bank bills quoted around 2.64%, a 280bp spread suggests a coupon of just under 5.5% - the lowest since the global financial crisis.

This is still attractive relative to the 4% or so returns available for five-year term deposits in Australia and the approximate 3.8% yields for senior unsecured five-year major bank bonds.

Any ban on the sale of hybrid notes to Australian retail investors would create obvious problems for the country's systematically important banks, which have to meet demanding Tier 1 requirements.

In order to boost institutional demand, the banks would need to offer a significantly higher return to compensate for the risks involved, perhaps alongside a new institutional-friendly domestic Tier 1 structure.

Even then local demand may not be high enough, since Australian fund managers are notoriously conservative, and many are barred from buying hybrids. This may lead Australian banks to target offshore institutional investors, but this route can be extremely pricey.

Non-major lender Macquarie Bank issued the first Basel III-compliant hybrid Tier 1 from an Aussie bank outside the domestic market in March 2012. The BB+ (sub investment grade) rated offering only raised half of its targeted maximum US$500m issue size and priced at the wide end of the 10.00%-10.25% guidance range.

CBA's PERLS VII will be perpetual, subordinated, unsecured notes with a call date on December 15 2022 and mandatorily exchangeable into CBA ordinary shares on December 15 2024.

The margin will be determined through a bookbuilding process and is expected to be announced on Tuesday (August 26) when the offer opens. The offer closes on September 19 with the issue date set at October 1.

CBA and Morgan Stanley Australia Securities are the arrangers of the transaction.

Goldman Sachs Australia, JP Morgan, Morgans Financial Limited, UBS and Westpac have been appointed joint lead managers. ANZ Securities, Bell Potter Securities, Deutsche Bank and Ord Minnett are co-managers. (Reporting by John Weavers, Editing by Steve Garton and Abby Schultz)

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UPDATE 1-Detroit water board OKs repurchase of $1.5 bln tendered bonds

Fri Aug 22, 2014 3:25pm EDT

(Adds comment from board CFO, upcoming court hearing, bond sale details)

DETROIT Aug 22 (Reuters) - The Detroit Board of Water Commissioners agreed on Friday to repurchase nearly $1.5 billion of water and sewer revenue bonds tendered by investors by a deadline on Thursday.

Detroit, which filed the biggest-ever municipal bankruptcy last year, launched the tender offer on Aug. 7 with the hope of attracting enough of the $5.2 billion of outstanding debt and replacing it with lower-cost bonds through a refinancing.

Nicolette Bateson, the board's chief financial officer, said the bond refinancing is expected to save Detroit $207 million in cash flow.

Detroit turned to the tender offer after most water and sewer bondholders rejected the city's plan to adjust $18 billion of debt in voting this summer. A key U.S. Bankruptcy Court hearing to determine if that plan is fair and feasible is scheduled to begin Sept. 2.

Judge Steven Rhodes, who is overseeing the case, will take up the city's motion for the court to approve the bond tender at a hearing on Monday.

The refinancing bonds could be issued through the Michigan Finance Authority and priced by lead underwriter Citigroup, possibly next week. The city has also said it could alternatively privately place the bonds with financial institutions. Detroit has set a Sept. 4 closing date for the deal.

Besides raising money to repurchase the tendered bonds, the issue would produce new money for the water system, which also serves dozens of communities outside of Detroit. (Reporting by Peter Suciu in Detroit; Additional reporting by Karen Pierog in Chicago; Editing by Meredith Mazzilli and Leslie Adler)

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Energy Future judge appoints committee to review lawyer fees

By Nick Brown

Fri Aug 22, 2014 4:12pm EDT

Aug 22 (Reuters) - The judge overseeing Energy Future Holdings' massive bankruptcy appointed a committee to review the fees of lawyers and other professionals in the case.

Law firm Godfrey & Kahn, which advised a fee committee in the bankruptcy of Lehman Brothers, the largest and most expensive Chapter 11 filing in history, will advise a similar four-member committee in Energy Future's case, according to an order signed by Judge Christopher Sontchi on Thursday in U.S. Bankruptcy Court in Delaware.

Energy Future, the former TXU Corp, declared bankruptcy in April to restructure more than $40 billion in debt, making it among the largest-ever Chapter 11 cases. The army of financial advisers and high-priced, specialized restructuring lawyers from top-level firms like Kirkland & Ellis and Morrison & Foerster will make the case an expensive one.

Energy Future's estate will also be responsible for the fees of its official creditors' committee, and potentially other creditor factions.

In bankruptcy, where the goal is to maximize recoveries for creditors, professional bills are publicly filed, heavily scrutinized and subject to court approval.

The most sought-after bankruptcy lawyers charge more than $1,000 an hour, sometimes creating a perception in restructuring circles that lawyers have no incentive to move cases along quickly. The U.S. Trustee Program, the Justice Department's bankruptcy watchdog, rolled out new guidelines last year for how lawyers in big bankruptcy cases should report their fees to courts.

It is common practice in large and complex cases like Energy Future's to appoint a committee or examiner to review monthly fee statements, work with parties to reduce costs, make recommendations to judges on whether to approve fees and object to fees they believe are unnecessary.

Energy Future's committee will include four members: one each chosen by the company, its creditors' committee and the U.S. Trustee, and one independent member. (Reporting by Nick Brown; Editing by Dan Grebler)

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UPDATE 2-Detroit water board OKs repurchase of $1.5 bln tendered bonds

Fri Aug 22, 2014 8:29pm EDT

(Adds comments from Detroit water/sewer officials, details on potential bond refinancing)

DETROIT Aug 22 (Reuters) - The Detroit Board of Water Commissioners agreed on Friday to repurchase nearly $1.5 billion of water and sewer revenue bonds tendered by investors by a deadline on Thursday.

Detroit, which filed the biggest-ever municipal bankruptcy last year, launched the tender offer on Aug. 7 with the hope of getting back enough of the $5.2 billion of outstanding debt through a tender offer and replacing it with lower-cost bonds through a refinancing.

Pending approval from U.S. Bankruptcy Court, about $1.8 billion of refinancing bonds would be sold in the municipal bond market on Tuesday, according to Nicolette Bateson, chief financial officer of Detroit's water and sewerage department (DWSD).

The debt refunding will raise money to pay for the tendered bonds, as well as $162 million for construction projects, she said, adding that savings from the refinancing are projected at about $241 million over 26 years.

Detroit turned to the tender offer after most water and sewer bondholders rejected the city's plan to adjust $18 billion of debt in voting this summer.

DWSD Director Sue McCormick said the voluntary bond tender offer accomplished two goals.

"The first was to execute a tender/refinancing transaction that achieved meaningful dollar savings for our customers," she said in a statement. "The second was to seek an open market alternative to the impairment in the city of Detroit's plan of adjustment."

If the tender is accomplished, any remaining bonds that were not tendered would continue to be paid by the city under existing terms.

If it fails to be completed, call protection would be eliminated or interest rates would be reduced on "impaired" outstanding water and sewer bonds under the debt adjustment plan. Those bonds make up about $2.2 billion of the existing $5.2 billion of debt.

Judge Steven Rhodes, who is overseeing the city's bankruptcy case, will take up the city's motion for the court to approve the bond tender at a hearing on Monday. On Sept. 2, the judge will commence a key hearing to determine if the city's debt adjustment plan is fair and feasible.

The refinancing bonds would be issued through the Michigan Finance Authority and priced by lead underwriter Citigroup. Detroit has set a Sept. 4 closing date for the deal.

The DWSD said it plans to pursue future refinancings of more than $1 billion of bonds that become callable within the next two years. (Reporting by Peter Suciu in Detroit; Additional reporting by Karen Pierog in Chicago; Editing by Meredith Mazzilli, Leslie Adler and Ken Wills)

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UPDATE 1-Detroit water board OKs repurchase of $1.5 bln tendered bonds

Fri Aug 22, 2014 3:25pm EDT

(Adds comment from board CFO, upcoming court hearing, bond sale details)

DETROIT Aug 22 (Reuters) - The Detroit Board of Water Commissioners agreed on Friday to repurchase nearly $1.5 billion of water and sewer revenue bonds tendered by investors by a deadline on Thursday.

Detroit, which filed the biggest-ever municipal bankruptcy last year, launched the tender offer on Aug. 7 with the hope of attracting enough of the $5.2 billion of outstanding debt and replacing it with lower-cost bonds through a refinancing.

Nicolette Bateson, the board's chief financial officer, said the bond refinancing is expected to save Detroit $207 million in cash flow.

Detroit turned to the tender offer after most water and sewer bondholders rejected the city's plan to adjust $18 billion of debt in voting this summer. A key U.S. Bankruptcy Court hearing to determine if that plan is fair and feasible is scheduled to begin Sept. 2.

Judge Steven Rhodes, who is overseeing the case, will take up the city's motion for the court to approve the bond tender at a hearing on Monday.

The refinancing bonds could be issued through the Michigan Finance Authority and priced by lead underwriter Citigroup, possibly next week. The city has also said it could alternatively privately place the bonds with financial institutions. Detroit has set a Sept. 4 closing date for the deal.

Besides raising money to repurchase the tendered bonds, the issue would produce new money for the water system, which also serves dozens of communities outside of Detroit. (Reporting by Peter Suciu in Detroit; Additional reporting by Karen Pierog in Chicago; Editing by Meredith Mazzilli and Leslie Adler)

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Energy Future judge appoints committee to review lawyer fees

By Nick Brown

Fri Aug 22, 2014 4:12pm EDT

Aug 22 (Reuters) - The judge overseeing Energy Future Holdings' massive bankruptcy appointed a committee to review the fees of lawyers and other professionals in the case.

Law firm Godfrey & Kahn, which advised a fee committee in the bankruptcy of Lehman Brothers, the largest and most expensive Chapter 11 filing in history, will advise a similar four-member committee in Energy Future's case, according to an order signed by Judge Christopher Sontchi on Thursday in U.S. Bankruptcy Court in Delaware.

Energy Future, the former TXU Corp, declared bankruptcy in April to restructure more than $40 billion in debt, making it among the largest-ever Chapter 11 cases. The army of financial advisers and high-priced, specialized restructuring lawyers from top-level firms like Kirkland & Ellis and Morrison & Foerster will make the case an expensive one.

Energy Future's estate will also be responsible for the fees of its official creditors' committee, and potentially other creditor factions.

In bankruptcy, where the goal is to maximize recoveries for creditors, professional bills are publicly filed, heavily scrutinized and subject to court approval.

The most sought-after bankruptcy lawyers charge more than $1,000 an hour, sometimes creating a perception in restructuring circles that lawyers have no incentive to move cases along quickly. The U.S. Trustee Program, the Justice Department's bankruptcy watchdog, rolled out new guidelines last year for how lawyers in big bankruptcy cases should report their fees to courts.

It is common practice in large and complex cases like Energy Future's to appoint a committee or examiner to review monthly fee statements, work with parties to reduce costs, make recommendations to judges on whether to approve fees and object to fees they believe are unnecessary.

Energy Future's committee will include four members: one each chosen by the company, its creditors' committee and the U.S. Trustee, and one independent member. (Reporting by Nick Brown; Editing by Dan Grebler)

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UPDATE 2-Detroit water board OKs repurchase of $1.5 bln tendered bonds

Fri Aug 22, 2014 8:29pm EDT

(Adds comments from Detroit water/sewer officials, details on potential bond refinancing)

DETROIT Aug 22 (Reuters) - The Detroit Board of Water Commissioners agreed on Friday to repurchase nearly $1.5 billion of water and sewer revenue bonds tendered by investors by a deadline on Thursday.

Detroit, which filed the biggest-ever municipal bankruptcy last year, launched the tender offer on Aug. 7 with the hope of getting back enough of the $5.2 billion of outstanding debt through a tender offer and replacing it with lower-cost bonds through a refinancing.

Pending approval from U.S. Bankruptcy Court, about $1.8 billion of refinancing bonds would be sold in the municipal bond market on Tuesday, according to Nicolette Bateson, chief financial officer of Detroit's water and sewerage department (DWSD).

The debt refunding will raise money to pay for the tendered bonds, as well as $162 million for construction projects, she said, adding that savings from the refinancing are projected at about $241 million over 26 years.

Detroit turned to the tender offer after most water and sewer bondholders rejected the city's plan to adjust $18 billion of debt in voting this summer.

DWSD Director Sue McCormick said the voluntary bond tender offer accomplished two goals.

"The first was to execute a tender/refinancing transaction that achieved meaningful dollar savings for our customers," she said in a statement. "The second was to seek an open market alternative to the impairment in the city of Detroit's plan of adjustment."

If the tender is accomplished, any remaining bonds that were not tendered would continue to be paid by the city under existing terms.

If it fails to be completed, call protection would be eliminated or interest rates would be reduced on "impaired" outstanding water and sewer bonds under the debt adjustment plan. Those bonds make up about $2.2 billion of the existing $5.2 billion of debt.

Judge Steven Rhodes, who is overseeing the city's bankruptcy case, will take up the city's motion for the court to approve the bond tender at a hearing on Monday. On Sept. 2, the judge will commence a key hearing to determine if the city's debt adjustment plan is fair and feasible.

The refinancing bonds would be issued through the Michigan Finance Authority and priced by lead underwriter Citigroup. Detroit has set a Sept. 4 closing date for the deal.

The DWSD said it plans to pursue future refinancings of more than $1 billion of bonds that become callable within the next two years. (Reporting by Peter Suciu in Detroit; Additional reporting by Karen Pierog in Chicago; Editing by Meredith Mazzilli, Leslie Adler and Ken Wills)

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Just over quarter of Detroit water/sewer bonds tendered

Thu Aug 21, 2014 5:33pm EDT

Aug 21 (Reuters) - Bondholders of $5.2 billion of Detroit water and sewer revenue bonds turned in only 28.34 percent of the debt for repurchase by Thursday's expiration of the city's tender offer, according to tender agent data.

Real-time data posted on the Internet by Bondholder Communications Group showed nearly $1.47 billion of senior and second lien bonds were tendered by the 5 p.m. Eastern Time deadline set by the city when it announced on Aug. 7 the offer to repurchase the debt.

Robert Apfel, Bondholder Communications president, said that official results will be announced by Detroit on Friday. (Reporting By Karen Pierog and Lisa Lambert; Editing by Chris Reese)

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UPDATE 2-ISDA sets Argentina CDS auction date after yen bond inclusion

Thu Aug 21, 2014 6:06pm EDT

(Adds new auction date)

By Davide Scigliuzzo and Christopher Whittall

NEW YORK/LONDON, Aug 21 (IFR) - The International Swaps and Derivatives Association (ISDA) has set an action date of September 3 to settle Argentina's credit default swaps after including two controversial yen-denominated bonds in the list of deliverable securities.

In a 14-to-1 vote, members of ISDA's determinations committee decided Thursday to allow the yen bonds to be delivered in the auction that will determine the payout for the US$813m net notional of CDS, rejecting a challenge that they should be left out.

A representative for Pacific Investment Management Co (PIMCO) was the only member who opposed the decision, according to a note posted on ISDA's website.

The little-traded yen notes - a 4.33% December 2033 and a 0.45% December 2038 - had been the focus of investor attention as they trade at steep discounts to par value and their inclusion into the auction will likely result in a lower payout for CDS holders.

Participants said that the market had already priced in a lower CDS payout of around 40 cents on the dollar prior to the latest ISDA announcement. This is well below the 48 cents where Argentina's euro Par bonds change hands, which were the next cheapest-to-deliver obligations.

"The impact will be large in terms of recovery value," Jane Brauer, quantitative fixed-income strategist at Bank of America Merrill Lynch, said before the ISDA announcement.

"If yen bonds are included in the auction, then recovery will be on the low side. If they're not included, recovery will migrate to the euro bond price, which is a big jump."

The challenge to the inclusion of the two notes caused ISDA to postpone the CDS auction, originally scheduled for Thursday.

The auction, run by Creditex and Markit, will determine the payout protection buyers will receive as a result of the sovereign's default on July 30. (Reporting by Davide Scigliuzzo in New York and Christopher Whittall in London; Editing by Paul Kilby)

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UPDATE 1-Detroit water and sewer bond tender appears to fall short

Thu Aug 21, 2014 6:16pm EDT

(Adds no comment from emergency manager spokesman, Fitch report and background)

Aug 21 (Reuters) - The holders of $5.2 billion of Detroit water and sewer revenue bonds turned in only 28.34 percent of the debt for repurchase before Thursday's expiration of the city's tender offer, according to tender agent data.

Real-time data posted online by Bondholder Communications Group showed nearly $1.47 billion of senior and second lien bonds were tendered by the 5 p.m. EDT (2100 GMT) deadline set by the city when it announced the offer on Aug. 7.

Robert Apfel, Bondholder Communications president, said official results would be announced by Detroit on Friday.

A spokesman for Detroit Emergency Manager Kevyn Orr did not immediately respond to a request for comment on the apparent lackluster response to the tender.

The bankrupt city must now determine if enough bonds were tendered and if sufficient savings would be generated by refinancing the debt. Detroit on Tuesday released preliminary sale documents for up to $5.5 billion of refunding water and sewer bonds that would be sold to pay for the tender.

If the city decides to proceed with the issuance, the bonds would be sold next week in the municipal market through lead manager Citigroup Inc or through a private placement with financial institutions.

Detroit turned to the tender offer after most bondholders rejected the city's plan to adjust $18 billion of debt in voting this summer. A key U.S. Bankruptcy Court hearing to determine if that plan is fair and feasible is scheduled for Sept. 2.

If the tender is accomplished, any remaining bonds that were not tendered would continue to be paid by the city under existing terms.

However, if the tender offer fails, call protection would be eliminated or interest rates would be reduced on "impaired" outstanding water and sewer bonds under the debt adjustment plan.

Fitch Ratings on Thursday said impaired bonds account for about 43 percent of the debt, adding that Detroit would likely lose a legal fight to keep the bonds impaired given their standing as special revenue obligations under the federal bankruptcy code and provisions in Michigan law and in Detroit's charter.

Fitch said the impairment options would have to be crammed down on bondholders by the bankruptcy court, a move that would likely harm the city.

"Impairing otherwise healthy and performing special revenue debt despite the protections of federal, state and city law may make it more difficult for Detroit to issue special revenue obligations in the future," Fitch said in a report.

Credit ratings on the water and sewer bonds fell into the junk category as Detroit's bankruptcy case, filed more than a year ago, progressed.

Detroit's Board of Water Commissioners has scheduled a Friday meeting to evaluate the tender offer results. Approval by Judge Steven Rhodes, who is overseeing Detroit's biggest-ever municipal bankruptcy case, is also needed for the bond tender.

(Reporting By Karen Pierog and Lisa Lambert; Editing by Chris Reese and Tom Brown)

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Interviews underway for Puerto Rico's PREPA restructuring chief - sources

Wed Aug 20, 2014 3:13pm EDT

Aug 20 (Reuters) - Candidates are being interviewed this week for a chief restructuring officer at Puerto Rico's struggling power authority, two people briefed on the matter told Reuters.

The Puerto Rico Electric Power Authority, or PREPA, must hire a CRO by Sept. 8 under an agreement with creditors as it works on developing a restructuring plan to revive the utility, which has more than $9 billion in debt. Interviews are expected to last a few days, one of the people said.

The CRO will essentially lead PREPA through what are expected to be contentious restructuring talks, working with creditors to develop a business plan and manage the agency's liquidity.

PREPA said in a statement to Reuters on Wednesday the tapping of a CRO is a "competitive process."

"PREPA is looking for the best candidate ahead of September 8th," the agency said. "We will provide an update when a final decision has been made."

Interviews are likely to include candidates from established, U.S.-based turnaround advisory firms, said one of the people briefed on the matter. It is unclear whether the field could also feature less conventional professionals with more familiarity with Puerto Rico's political landscape. (Reporting by Nick Brown; Editing by Chizu Nomiyama)

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About 25 percent of Detroit's water and sewer bonds tendered so far

Wed Aug 20, 2014 6:20pm EDT

Aug 20 (Reuters) - Just over a quarter of Detroit's $5.2 billion of outstanding water and sewer revenue bonds were returned to the city for repurchase on Wednesday, 24 hours before the tender offer was due to expire.

Bondholders have until 5 p.m. EDT (2100 GMT) on Thursday to decide whether to accept repurchase prices offered by the city. As of 5 p.m. Wednesday, 25.07 percent or nearly $1.3 billion of the senior and second lien bonds were tendered, according to tender agent Bondholder Communications Group. here

Some series of bonds had tender rates of less than 3 percent. Others were much higher, including 79 percent of $90.6 million of senior lien water bonds sold in 2004.

Robert Apfel, president of Bondholder Communications, said a last-minute posting of tenders was expected as brokers and banks working on behalf of their clients typically wait until just before the deadline expires. The tender offer was launched on Aug. 7.

Detroit Emergency Manager Kevyn Orr and the city's Board of Water Commissioners will decide whether enough bonds were ultimately tendered and if sufficient savings can be achieved through a bond refunding to raise money for the tender. The water board has scheduled a meeting for Friday.

If U.S. Judge Steven Rhodes, who is overseeing Detroit's historic bankruptcy case, subsequently signs off on the bond plan, the city could either sell up to $5.5 billion of the refunding bonds on the municipal market next week through Citigroup or privately place the debt with Citigroup and other financial institutions.

Ahead of the tender expiration, the city released preliminary sale documents late Tuesday for the possible bond issues.

In a report this week, Janney Capital Markets said that in some instances, the tender price Detroit is offering to existing water and sewer bondholders "is well below recent trading levels." The bonds are rated at junk levels. (Reporting By Karen Pierog; Editing by Tom Brown)

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Regional water authority envisaged in latest Detroit bankruptcy plan

Thu Aug 21, 2014 2:31am EDT

(Refiled to correct error in formatting of text)

Aug 21 (Reuters) - Detroit has once again raised the possibility of having a regional water and sewer system authority in the latest version of a debt adjustment plan the city filed in the U.S. Bankruptcy Court late on Wednesday.

The new draft of the plan -- the last one expected ahead of a financial feasibility trial scheduled to open in early September -- also includes the city's current effort to repurchase $5.2 billion of outstanding water and sewer system revenue bonds.

Nearly 25.7 percent of the bonds were tendered by late Wednesday, according to tender agent Bondholder Communications Group. Bondholders have until 5 p.m. Eastern Time on Thursday to take up the city's tender offer.

If enough bonds are returned and if the city can project sufficient savings from a planned bond refunding, Detroit could sell up to $5.5 billion of refunding bonds in the municipal market as soon as next week. The city also could privately place the debt with financial institutions.

Discussion of the proposed regional authority to run the city's water and sewer services returned to Detroit's plan after the idea was dropped in a prior draft earlier this year.

That prompted Judge Steven Rhodes, who is overseeing Detroit's historic bankruptcy case, to order the city and Wayne, Macomb and Oakland counties into mediation on the concept. Detroit currently provides water and sewer services in those counties, but the system is in need of costly repairs.

"As a result of mediation or otherwise, it is possible that the city may enter into an authority transaction that includes the formation of the DWSD (Detroit Water and Sewer Department) Authority to conduct many or all of the operations currently conducted by DWSD," the sixth amended plan said.

It added that the deal would be subject to approval by the bankruptcy court and other involved parties and would require the three counties to drop their objections to the debt adjustment plan.

As part of Detroit's plan to adjust $18 billion of debt and exit the biggest-ever municipal bankruptcy, the city said it would use $408.6 million in water and sewer revenue over nine years to cover payments to the Detroit General Retirement System accrued through June 30. The three counties have objected to the revenue diversion, contending the money is needed for critical system improvements.

Rhodes will commence on Sept. 2 a lengthy confirmation hearing on Detroit's plan to determine if it's fair and feasible. The key proceeding had been slated to start on Aug. 29 with objections from individual creditors without legal representation, but Rhodes on Wednesday postponed that portion until later in the hearing.

The updated financial plan also touches upon a state-run financial review commission, created under a new Michigan law, which would oversee Detroit's finances after it exits bankruptcy.

"The financial oversight board shall be composed of individuals with recognized financial competence and experience and shall have the authority to, among other things, impose limits on city borrowing and expenditures and require the use of financial best practices," the plan said.

It added that the city will "promptly" provide the court with any reports given to or received from the commission.

Rhodes last week directed Detroit to present details at the confirmation hearing on how the law will be implemented.

The law, which was enacted in June as part of Michigan's $195 million contribution to the plan, creates a nine-member panel that will stay active until Detroit meets certain financial thresholds. (Reporting By Karen Pierog; Editing by Greg Mahlich)

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CORRECTED-Momentive to face critics as bankruptcy-exit plan goes before court

Tue Aug 19, 2014 12:04pm EDT

(Corrects paragraph 5 to say U.S. Bank is trustee for junior bondholders)

By Nick Brown

NEW YORK Aug 18 (Reuters) - Momentive Performance Materials, the quartz and silicone maker owned by Apollo Global Management, will embark Monday on a week of hotly contested hearings seeking court approval of a plan to cut $3 billion in debt and exit bankruptcy.

The Waterford, New York-based company filed for Chapter 11 bankruptcy in April with an agreement to transfer control to a class of bondholders, but most other creditors have vigorously opposed the plan.

Bankruptcy Judge Robert Drain has set aside four days this week - Monday, Tuesday, Thursday and Friday - to hash out the disputes in his White Plains, New York, courtroom and decide whether to approve the plan. The deal is premised on a $1.3 billion loan from JPMorgan Chase & Co and a $600 million rights offering available to holders of second-lien bonds, who would walk away with Momentive's equity.

The fight may not be as messy as it looks on paper. Creditors' grievances, while ardent, are narrow in scope, turning on Drain's interpretation of a few lines of contract language.

The key objection comes from junior bondholders, led by U.S. Bank NA as trustee, who would recover nothing under the plan. Owed some $382 million, the group cannot be treated worse than the bondholders participating in the rights offering, U.S. Bank says.

Momentive has cited contract language pushing the U.S. Bank group's debt behind other creditors', but the bank claims the clause applies only to senior secured lenders, and that no other creditor group can stand ahead of it in the payback line.

Parties have acknowledged a win for U.S. Bank on that issue would upend the restructuring and send Momentive back the drawing board. The matter kicks off Monday's hearing, and if Drain sides with U.S. Bank early on, he could obviate the rest of the week's schedule.

The other major objection comes from senior secured lenders owed more than $1 billion, led by Bank of Oklahoma and Wilmington Trust. Although they would receive full repayment under the plan, they object to missing out on extra premiums known as make-whole payments they say are owed for early redemption of their bonds.

The plan includes language that toggles the lenders' payout based on the outcome of the make-whole fight, so unlike the U.S. Bank dispute, the plan would remain in tact if Momentive loses.

The case has been tense since the outset, with some creditors hinting in court papers that Apollo, which both owns Momentive and holds some of its second-lien debt, is getting a sweetheart deal that lets it hold onto some equity.

"It's like doing a deal with your wife," one person close to the case told Reuters. "If the other side wins, you still win."

Momentive in court papers called the deal "the culmination of arm's-length negotiations." (Reporting by Nick Brown; Editing by Ken Wills)

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Brazil miner MMX says not filing for bankruptcy, denies report

RIO DE JANEIRO Tue Aug 19, 2014 2:41pm EDT

RIO DE JANEIRO Aug 19 (Reuters) - Eike Batista's iron ore miner MMX Mineracao e Metalicos SA said on Tuesday it is not considering filing for bankruptcy, denying a local media report published late on Monday.

"MMX clarifies that there are no deliberations in process on this matter at the company," the firm said in a statement.

Shares of Rio de Janeiro-based MMX fell nearly more than 7 percent to an all-time low earlier on Tuesday due to the report, which appeared on the website of the Brazilian magazine Veja. (Reporting by Stephen Eisenhammer; Editing by Meredith Mazzilli)

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ISDA delays Argentina CDS auction until September

Tue Aug 19, 2014 5:39pm EDT

NEW YORK, Aug 19 (IFR) - The International Swaps and Derivatives Association (ISDA) has delayed the auction to settle Argentina's credit default swaps until at least September.

ISDA's 15-member determinations committee voted unanimously Tuesday to postpone the auction until at least after September 2.

The committee today began discussing a challenge it received regarding the inclusion of two Japanese-law restructured notes into the list of securities deliverable into the auction.

As the challenge needs to be resolved before the auction can take place, the committee opted to postpone the date of the auction from the originally scheduled August 21.

The auction, run by Creditex and Markit, will determine the payout that holders of protection on Argentine bonds will receive as a result of the sovereign's default on July 30. (Reporting by Davide Scigliuzzo; Editing by Marc Carnegie)

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CORRECTED-FEATURE-Chips are down for Atlantic City's hard-luck Revel Casino

Mon Aug 18, 2014 6:13pm EDT

(Corrects to show Chatham exited Revel equity investment in paragraph 20)

By Daniel Kelley and Hilary Russ

Aug 16 (Reuters) - When the $2.4 billion Revel Casino opened its doors in 2012, the curvy blue-glass tower was hailed as the wave of the future for Atlantic City, New Jersey.

But only two years later, with the announcement that it will close next month while in bankruptcy for the second time, the gleaming, 52-story gambling palace is looking very much like a white elephant stranded on Atlantic City's beachfront.

"You don't expect to see a two-year-old property close," said Alan Woinski, president of Gaming USA, an industry consultancy and newsletter publisher. But "all the things that doom a property were in there."

Rather than heralding a new era, Atlantic City's newest gaming house has become an embarrassment for the now-fading resort city, where three other casinos are shutting down, leaving eight to cater to gamblers.

That said, the Revel's dilemma is also one of its own making. Its sleek, dramatic design was supposed to be its prime attraction, but critics say the structure was too grandiose, and its cavernous gaming floor often feels dead. By most accounts, the Las Vegas buzz that the Revel's backers hoped to recreate is conspicuously missing.

Those same flaws are now likely to work against an eventual sale of the property, which has no other obvious uses than as a casino. Even conversion to condos seems impractical in a city that is losing thousands of jobs and has a reputation for high crime.

The latest turn of events comes after years of hard luck for the project. Since its inception just before the financial crisis, the Revel has encountered huge cost overruns. Its out-of-the-way location at the edge of the city was a turn-off. Early on a plane crash killed some executives, delaying construction.

By the time it opened in April 2012, Revel was already struggling with its debt burden and the broader challenges facing Atlantic City as casinos opened in nearby states, according to bankruptcy court documents filed last month.

Gaming revenue for Atlantic City, which once held a lucrative East Coast gambling monopoly, has dropped from a peak of $5.2 billion in 2006 to $2.8 billion in 2013, according to New Jersey gaming regulators.

Now community leaders, real estate professionals and gaming experts have been left to wonder: what comes next for the Revel?

"We really don't know," said Liza Cartmell, president of the Atlantic City Alliance, the New Jersey city's tourism marketing organization.

Observers have begun to ponder the Revel's future as a hotel without casino gambling, or as condos. But they say any fix will cost a buyer tens of millions, if not hundreds of millions of dollars, to put kitchens in its 1,400 rooms and do something - anything - with the restaurants and gaming floor on the lower levels of the tower.

And then there are those who still hold out hope that a buyer will come in with a low-ball offer and continue to operate it as a casino.

That, too, could be expensive, requiring cash for rebranding, cash to build a customer base, and cash to fix serious design flaws in the casino itself.

"It's like a church built for Easter Sunday," said Rob Heller, president and CEO of Spectrum Gaming Capital, an investment banking and advisory firm focused on the casino industry.

In a worse-case scenario, Revel could liquidate in its current bankruptcy if it can't find a buyer.

At this stage, it is difficult to say what might happen to an investment that initial backer Morgan Stanley abandoned in 2010, taking a $1.2 billion loss.

New investors were then wooed in part by a promise from New Jersey for $261 million in future tax rebates and a strong show of support by Gov. Chris Christie, who lauded the project "the model for the future" of Atlantic City.

Christie has called a 'summit' on Sept. 8 to chart a direction for the struggling gambling center.

After the Revel's first bankruptcy in 2013, lenders including hedge funds took ownership. A unit of New Jersey hedge fund adviser Chatham Asset Management controlled 27 percent of Revel AC Inc, but exited its equity investment early this summer, a Chatham spokeswoman said. Los Angeles-based hedge fund manager Canyon Capital Advisors owns 16 percent, according to bankruptcy documents.

NEW ERA POSTPONED

Revel's design features ocean views from every hotel room, rooftop gardens, and dance clubs with which it hoped to lure a younger crowd with Vegas-style elan.

Early plans to build two hotel towers, each with 1,900 rooms, were scrapped for the construction of a single one with 1,400 rooms. Public spaces, however, were scaled to a 3,800-room property, giving the gaming floors an empty feeling.

Then there is, in the words of University of Nevada Las Vegas gaming expert David Schwartz, "the escalator of death." a long, steep conveyance that carries gamblers from the ground floor to the casino's second-floor gaming hall. Some critics have compared it to the escalators in the London Underground, only with nothing but air underneath.

Schwartz, who admits to a fear of heights, said that breaking up escalators is "Casino Design 101."

One of Revel's biggest problem is its location at the far northern end of Atlantic City, said Paul Steelman, an Atlantic City native and Las Vegas-based casino architect

"A person driving needs to pass many alternative locations," Steelman said. "Revel is the last casino in a long line of alternatives."

While many have held out hope that Revel could be converted to a non-casino use, Steelman has his doubts. Casinos are designed to be casinos, and the expense of operating the building make other uses difficult.

"To convert these rooms to residential uses would be difficult, but I also believe real estate taxes would be prohibitive," Steelman said. "There really is no alternate use." (Reporting by Daniel Kelley in Philadelphia and Hilary Russ in New York; Editing by Frank McGurty and James Dalgleish)

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UPDATE 1-Momentive faces critics as bankruptcy-exit plan goes before court

Mon Aug 18, 2014 5:14pm EDT

(Adds detail from first day of hearing)

By Nick Brown

NEW YORK Aug 18 (Reuters) - A judge said he will rule on Tuesday whether junior bondholders of Momentive Performance Materials, a quartz and silicone maker owned by Apollo Global Management, are being fairly pushed behind other creditors, a decision that could make or break Momentive's plan to cut $3 billion in debt and exit bankruptcy.

Judge Robert Drain heard hours of argument from the bondholders and the company at the first day of a week-long hearing in U.S. bankruptcy court in White Plains, New York on Monday. Drain said he will offer his ruling when the sides return to court on Tuesday morning.

Waterford, New York-based Momentive filed for Chapter 11 bankruptcy in April with an agreement to transfer control to a class of bondholders, but most other creditor classes have vigorously opposed the plan.

Drain has set aside four days this week - Monday, Tuesday, Thursday and Friday - to hear objections the deal, which is premised on a $1.3 billion loan from JPMorgan Chase & Co and a $600 million rights offering available to holders of second-lien bonds, who would walk away with Momentive's equity.

The key objection comes from junior bondholders led by U.S. Bank NA, who would recover nothing under the plan. Owed some $382 million, U.S. Bank says it cannot be treated worse than the bondholders participating in the rights offering.

Momentive has cited contract language pushing U.S. Bank's debt behind other creditors', but the bank claims the clause applies only to senior secured lenders, and that no other creditor group can stand ahead of it in the payback line.

Parties have acknowledged a win for U.S. Bank on that issue would upend the restructuring and send Momentive back the drawing board. If Drain sides with U.S. Bank on Tuesday, he could ostensibly obviate the rest of the week's schedule.

The other major objection comes from senior secured lenders owed more than $1 billion, led by Bank of Oklahoma and Wilmington Trust. Although they would receive full repayment under the plan, they object to missing out on extra premiums known as make-whole payments they say are owed for early redemption of their bonds.

The case has been tense since the outset, with some creditors hinting in court papers that Apollo, which both owns Momentive and holds some of its second-lien debt, is getting a sweetheart deal that lets it hold onto some equity.

"It's like doing a deal with your wife," one person close to the case told Reuters. "If the other side wins, you still win."

Momentive in court papers called the deal "the culmination of arm's-length negotiations." (Reporting by Nick Brown; Editing by Ken Wills and Andrew Hay)

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Europeans banks eye dollar bond market for capital boost

Tue Aug 19, 2014 4:51am EDT

(This story originally appeared in IFR, a Thomson Reuters publication)

By Danielle Robinson and Helene Durand

LONDON, Aug 19 (IFR) - European banks are expected to flock to the Yankee bond market with Additional Tier 1 and Tier 2 issuance in the autumn, lured by attractive funding costs.

A sharp rally in dollar-denominated European Tier 2 securities last week made it possible for certain European banks to reap at least 50bp of savings if they go to the US market rather than euros, including the cost of swapping back to their home currency.

Bankers differ on how much savings are to be had by issuing AT1s in dollars. But most agree that the Yankee market will be the place for Europe's financials if they want a combination of large deal size, strong demand and better pricing for capital.

"The dollar market is more competitive right now and the basis swap has moved in favour of European borrowers issuing in dollars and swapping back to euros, so we could see financials look to take advantage of this," said Alexandra MacMahon, head of FIG DCM for EMEA at Citigroup.

The biggest savings, according to US FIG bankers, is in the Yankee Tier 2 space, where names such as Commerzbank and Intesa Sanpaolo saw spreads contract by as much as 8bp a day.

"Yankee Tier 2 spreads have been ripping tighter, especially in the last few days," said a senior FIG banker at one of the biggest US bank bond houses in New York.

"While senior and sub US bank debt isn't moving much tighter, some Yankee bank sub debt has tightened 4bp-8bp on a daily basis and some names are about 20bp tighter over the past few trading days," he added.

Commerzbank's 8.125% September 2023 subordinated bonds were trading at 305bp last Thursday, 35bp tighter than their 340bp level the previous Friday and compared with tights of 255bp in June.

While Tier 2 spreads might be off their tights, the all-in yield has benefited from a strong rate rally since then, with 10-year Treasury yields at 2.30% on Friday, down from around 2.60% at the end of June.

Even callable securities appear to be doing well in the US market, according to the FIG banker in New York.

"Yankee Tier 2 spreads have been ripping tighter, especially in the last few days. There's not a huge depth of demand for callables in our market but, even so, we are seeing 10NC5 levels [on Yankee European bank capital] that are at least a good 40bp through on a swapped-back-to-euro basis, so [the saving in the US dollar market] is meaningful in Tier 2."

European banks issuing Tier 2 are likely to be swamped with demand from US investors because the instruments will appeal to the traditional fixed income investor that does not take on the AT1 or US preferred product.

OPINION DIVIDED

Additional Tier 1 bonds also rebounded last week in both the euro and US markets, although opinions on how much savings in spread terms were available in dollars were mixed.

Some European FIG bankers thought the Additional Tier 1 savings were as much as 75bp for certain European banks to issue in dollars and swap back to euros, while the US FIG banker thought dollar new issue spreads on a swapped basis were probably only marginally better.

Even so, the Yankee market's trump card is the tiny amount of AT1 paper available, compared with the euro market.

"In the European market there is ample opportunity to buy euro-denominated bank paper, whereas the opportunity to buy AT1s in the [144A or SEC-registered] dollar market is much more limited," said a head of FIG syndicate at an investment bank in New York.

The European investor base is also still smarting from Banco Espirito Santo's collapse and the decision to abandon its Tier 2 bondholders.

"The US market has held up better over the summer because a lot of the headlines that we have had have been Europe-centric," said a head of European syndicate at a UK bank in London.

WOOD TO CHOP

Pricing leverage, however, is expected to sit in US investors' hands rather than with European banks when it comes to Yankee AT1s.

Although the lack of Additional Tier 1 issuance in the Yankee market will work to some extent in the borrowers' favour, US investors are aware of the mountain of capital the European banks need, at an estimated 25bn-equivalent of Tier 2 and Tier 1 issuance between now and the end of this year.

"The European banks have a lot of wood to chop here," said a head of trading at a global asset management firm. "At the beginning of the year, we estimated that they had about the equivalent 250bn of capital to raise in a three-year period, and our feeling is that supply will come faster than everyone thinks."

Supply could also end up being squeezed into just a few months, given that many banks are likely to wait until the ECB's Asset Quality Review is completed in mid-October.

When it comes to debating new issue concessions, US investors might also argue that dollar-denominated AT1s are highly correlated to junk bonds and equities, and suffered considerably as a result of the recent sell-off in the high-yield market.

"The US bank preferreds have performed much better through the past bout of volatility in high-yield," said the buyside trader. "It feels like the US bank prefs are more correlated to rates, and European AT1s are more susceptible to flows." (Reporting by Danielle Robinson, Helene Durand, Editing by Philip Wright)

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