How things can go for Muni bond folks---fwiw-
The Detroit GO Settlement, and My Halls of Fame and Shame
The monoline insurers MBIA, Assured Guaranty and Ambac ("monolines") scored a major victory when they settled with the City of Detroit with respect to the Chapter 9 treatment of the insured Detroit unlimited tax general obligation bonds (GOs).
The term sheet for the settlement provides, among other things, the following:
- the entire $388 million claim in respect of the GOs will be allowed in the Chapter 9, and the existing ad valorem taxes securing the GOs will be treated as "special revenues" for purposes of the Chapter 9, thereby rendering the GOs as secured for purposes of the Detroit plan of confirmation.
- 74% of the GOs will be reinstated for the benefit of the holders (Reinstated GOs), and 24% of the GOs (Stub GOs) will be reinstated and assigned to a fund for the benefit of the poorest Detroit pensioners.
- ad valorem taxes securing the GOs will continue to be levied in an amount sufficient to pay off all of the GOs, but such tax revenues will be applied first to pay the Reinstated GOs, and any excess will be applied thereafter to pay the Stub GOs.
- upon plan confirmation, the Reinstated GOs will be exchanged for GOs issued by the Michigan Financing Authority, which will be secured by both the existing Detroit ad valorem taxes as well as a 4th lien on state aid provided by the State of Michigan. There are further bond protections provided.
This is a significant victory for the monolines since the Detroit Emergency Manager (EM) had proposed an allowable claim of just 15%, or $58 million, in the proposed plan of adjustment. This settlement constitutes an incremental $229 million win for the monolines.
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