Wednesday, July 22, 2009

Detroit Restructures Sewage Bonds

Mayor Dave Bing announced that the City of Detroit has completed a $305 million restructuring of the City’s sewage system revenue bonds, saving customers an estimated $11.5 million per year.

“This transaction represents a tremendous savings for the citizens of Detroit and all customers of the sewage system,” said Mayor Bing. “I commend our finance team for moving quickly to find a solution that saves our residents money in the short term and puts us in a more secure position going forward.”

The completion of this process is expected to save the sewer system and its customers more than $220,000 a week in interest on the bonds.

Dexia, the bank that backed the City’s bonds was downgraded by the major credit agencies during the fallout of the sub-prime mortgage crisis, triggering a spike in additional interest payments from the sewer system.

“The financial crisis necessitated bold action from the city,” explained chief financial officer Norman White. “We moved quickly to develop a solution that would eliminate costs and reduce the risk for rate-payers in the future.”

To address the heightened interest charges, the City remarketed the sewage system bonds to new investors at fixed interest rates and terminated most of the associated interest rate swaps. The remarketing also eliminated the last of the system’s variable rate bonds.

The City’s underwriting team was led by Goldman Sachs & Co. The City’s bond counsel was Lewis & Munday. Robert W. Baird & Co. served as its financial adviser. Co-managing underwriters were Barclays Capital, Citi, KeyBank Capital Markets, Morgan Stanley and Siebert Branford.
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