Moratorium NOW! Coalition called a demonstration a Greater Grace Temple in Detroit to oppose Emergency Manager Kevyn Orr who had cancelled a scheduled meeting. Participants called for abolition of the EM. (Photo: Abayomi Azikiwe), a photo by Pan-African News Wire File Photos on Flickr.
July 8, 2013 at 10:43 pm
Insurance company challenges Orr decision to suspend Detroit's unsecured debt payments
Tony Briscoe
The Detroit News
Detroit Emergency Manager Kevyn Orr has a busy week ahead of him, including a meeting with the city's pension officials to discuss cuts to health care and pension costs on Wednesday. (Daniel Mears/The Detroit News)
An insurance company that covers $170 million in general obligation bonds in Detroit is challenging Emergency Manager Kevyn Orr’s restructuring plan for the city and the decision to suspend payments on the city’s unsecured debt, calling the move “harmful to Detroit and the interest of taxpayers in Michigan.”
The move by Ambac Assurance Corp., including hiring Harrison J. Goldin of Goldin Associates LLC to help advise it on Detroit, could indicate that Orr’s negotiations will be little more than a possible prelude to sending Detroit to bankruptcy court, where the filing would constitute the largest municipal bankruptcy in U.S. history.
“The state of Michigan is making a grave error in its support for the proposed treatment of the general obligation bonds previously issued by the city of Detroit that are backed by a pledge of the city's full faith and credit,” Goldin said in a statement.
“The revitalization of Detroit depends on its ability to re-access the credit markets in order to finance critical improvements to its infrastructure. It is short-sighted to signal to lenders that they cannot trust the city’s unconditional pledge to repay its general obligation debts, especially given that the general obligation bonds in question comprise less than three percent of the city's estimate of its liabilities."
When he announced his decision to suspend the city's debt payments in June, Orr ruffled the feathers of the general obligation bondholders by proposing to give them no preferential treatment compared to other unsecured debt holders, such as retirees. In most cases, general obligation bonds are backed by the ability of the city to raise taxes, and the bond holders can expect to receive more consideration than other unsecured debtors.
Goldin had a major role in New York City’s financial restructuring during the mid-1970s as he served as the city’s comptroller for 16 years.
Orr’s spokesman Bill Nowling said the primary concern of the restructuring plan, which aims to restructure $11 billion in unsecured debt to $2 billion, is to offer essential services for residents.
“General obligation bonds are unsecured debt,” Nowling said. “They can’t be given senior treatment to other debt. It is common practice. The fact that in so many instances investors got insurance for their bonds in Detroit shows me they saw risk investing in the city.”
Ambac said it backs $92.7 million in Detroit limited tax general obligation bond debt and $77.6 million in unlimited tax bonds.
tbriscoe@detroitnews.com
(313) 222-2541
Detroit News Staff Writer Brian O'Connor
From The Detroit News: http://www.detroitnews.com/article/20130708/METRO01/307080124#ixzz2YWaQMW3X
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