DETROIT-Detroit's Emergency Manager Kevyn Orr, as part of a plan to restructure the bankrupt city's debt, wants holders of more than $5 billion in sewer and water bonds to tear them up to be replaced with bonds with different terms that could save the city millions.
However, some bond holders are crying foul saying such a deal would set a dangerous precedent that may send shockwaves in what has been viewed as safe municipal debt markets. Some say the battle could reshape the nation's $3.7-trillion municipal bond market, according to the Wall Street Journal.
“You really break the foundation" of debt markets if municipalities can freely restructure their obligations, says Jim Colby, senior muni strategist and portfolio manager at Van Eck Global.
The bondholders and bond insurance companies are talking with Orr's team about plans for the system and exactly how much revenue he could possibly divert, according to people familiar with the discussions. A decision on the issue could be made by a judge in the bankruptcy case. The water and sewer systems posted $406.3 million in combined net revenue in fiscal year 2012, and spent $356.6 million on debt payments, according to public filings. See story in the Wall Street Journal.
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