Tuesday, June 12, 2012

DWSD Sewer Bond Sale Postponed (UPDATED)

Reports in the financial media (here, here, and here) indicate that the Detroit Water and Sewerage Department is postponing the sale over $596 million in new sewer bonds, which was scheduled for June 14, 2012.  

The precise reasons for this decision are not known at present, but the decision is undoubtedly tied to reports that the City of Detroit is about to run out of cash by June 15, 2012. This follows the lawsuit by the City's Corporation Counsel seeking to invalidate the Consent Agreement negotiated between Governor Rick Snyder and Mayor Dave Bing.

Check back for more details as this story unfolds. 

Update (6/13): The Bond Buyer has a very detailed article this morning (here) about the reasons why the DWSD bond sale was postponed, as well as the swap agreements that will be terminated using some of the proceeds.  In the short, DWSD is waiting for the City of Detroit to make Friday's $34.2 million debt payment.  The Bond Buyer, citing COO Matthew Schenk, reports that DWSD will bring its bonds to market next Wednesday (6/20). According to Mr. Schenk, the one week delay will "allow time for the city and state to work through their resolution of the city's upcoming bond payment. Upon resolution and disclosure of the bond payment to the market, we will proceed with the transaction."

The Bond Buyer article also notes that DWSD "could face a liability tied to interest-rate swaps that hedge $800 million of Detroit pension obligation debt." Stay tuned. . . 

Update (6/15): Citing Water Board Chair, James Fausone, Crain's Detroit Business is reporting (here) that  DWSD will return to the bond market next Wednesday, June 20th.

Update (6/20): Despite a spate of bad news, the Wall Street Journal reports (here) that DWSD sold $667 million worth of sewer bonds today. Strong demand allowed the Department to lower yields on the bonds by 10 basis points. An uninsured 2039 bond offered a yield of 5.30%, while a 2039 bond insured by Assurance Guaranty Municipal Corp. yielded 5.00%.  

Update (9/13): Bloomberg Businessweek reports (here) that $314 million of the sewer bonds sold in 6/20/12 went to banks to pay off interest-rate swap agreements, and that $222 million raised in December, 2011 selling bonds went to pay off swap agreements. That's $536 million dollars in about 6 months! No wonder the Department has to consider slashing its workforce by some 81%. 

For more about DWSD Update, click here

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