Detroit's Debts, Derivatives, Swaps and Safe Harbors

[townonenorth]

No, but I have noticed that once this became knowledge suddenly the demand to rationalize the water system has gone away! I don't even know how you would untangle that if it became to 'us' and 'yours' as certainly some of that debt is for projects that benefit the City more than the burbs, but a lot of it was to expand and to improve the burb's system. It is ONE system with one owner, many users to be sure.

I could see where the sale of the system to an authority, for the price of the debts incurred by the system, could happen. Regionalizing the water system in this way is a lot preferable than a privatized system. Which it could end up being if they don't get their shit together on this issue.

[DetroitPlanner]

I could see where the sale of the system to an authority, for the price of the debts incurred by the system, could happen. Regionalizing the water system in this way is a lot preferable than a privatized system. Which it could end up being if they don't get their shit together on this issue.

I can't see the suburbs agreeing to an authority that comes with a huge debt service.

[Novine]

The suburbs are already on the hook for the debt. There's no way that Judge Rhodes is going to wave away those debts when the revenue stream exists to cover those now and into the future.

[Hermod]

I can't see the suburbs agreeing to an authority that comes with a huge debt service.

The stock market doesn't think the DWSD dept is so "huge" that is cannot be serviced by scheduled revenues. DWSD bonds are still trading slightly above par despite the bankruptcy of the city.

[corktownyuppie]

DWSD bonds are still trading slightly above par despite the bankruptcy of the city.

That's a dangerous statement because the premise -- that the bonds are reading near par -- does not necessarily lead to the conclusion, that the market still considers them "safe".

For example, a US Treasury bond [[which for the purposes of market valuation are considered the benchmark for safest bonds) yielding 8% maturing in 5 years might trade at 45% over par...$14,500 for 10,000 face.

If you found a municipal bond with the same yield and maturity pricing near par, it's not because the market thinks it is safe, rather that the market considers it unsafe.

Last I looked, DWSD bonds were trading at about the same price as most comparable bonds rated BBB. So well above where the City of Detroit bonds. But certainly not somewhere of call "safe". This information may be dated.

[Wesley Mouch]

That's a dangerous statement because the premise -- that the bonds are reading near par -- does not necessarily lead to the conclusion, that the market still considers them "safe".

For example, a US Treasury bond [[which for the purposes of market valuation are considered the benchmark for safest bonds) yielding 8% maturing in 5 years might trade at 45% over par...$14,500 for 10,000 face.

If you found a municipal bond with the same yield and maturity pricing near par, it's not because the market thinks it is safe, rather that the market considers it unsafe.

Last I looked, DWSD bonds were trading at about the same price as most comparable bonds rated BBB. So well above where the City of Detroit bonds. But certainly not somewhere of call "safe". This information may be dated.

So in other words, if CoD water bonds were safe, they would be trading well above par. To be only at par is a sign of weakness. You can buy DWSD bonds that pay you real interest every year for little more than face value?

So if I buy a DWSD bond today maturing in 5 years for $10,000 + lets say $1,000 -- then I get 7% each year or $700 for 5 years = $3,500 in interest. And I'm paying only $1,000 for that $3,500? So what's really happening is that you are paying about 30 cents on the dollar for DWSD bond revenue?

People oh so much want to believe that this is a conspiracy -- when this really is just good ol' fashioned financial collapse due to dramatically sub-par financial behavior exposed by the very hard financial times of the last few years.

[renf]

In a report discussed on this board, Eric Scorsone of the MSU Extension Service estimates that the city of Detroit has unfunded obligations of about 4.9 billion dollars for "Other Employment Benefits." These are primarily obligations the city made to pay health care for retirees too young for Medicare and supplemental health benefits for those on Medicare. Spouses get these benefits, also. The city has made payments to the pension programs but, I infer, the city has been paying these Other Employment Benefits on a pay as you go basis. I believe that Kevyn Orr has already made it more difficult for employees to qualify for these benefits. I would assume that these Other Employment Benefits would be substantially reduced or eliminated in bankruptcy.

[Novine]

Retiree health care isn't constitutionally protected. They were at risk even before bankruptcy was on the table.