Banker: Detroit safe bet after bankruptcy

10/01/2014

DETROIT — Lenders are betting that the City of Detroit will be a good investment following bankruptcy, the city's investment banker testified Tuesday.

Ken Buckfire, president of New York-based investment bank Miller Buckfire, testified on Day 15 of the city's bankruptcy trial that Detroit will have a "very high level of certainty" in its finances over the next decades.

He said the significant reduction in Detroit's unsecured debts and liabilities — which are expected to fall from $10.4 billion to $3.1 billion — clears the way for the city to pay its debts with relative ease.

But he also acknowledged the city's ability to stabilize its tax revenue will also affect its financial health.

The city's restructuring plan provides a stable level of pension contributions and wipes out the city's obligation to pay for retiree health care.

The reduced debt load — combined with a state oversight board that can reject future borrowing schemes and profligate spending — has made Detroit debt an attractive investment, Buckfire said.
"It's certainly not a distressed situation any longer," Buckfire said. "The market, I believe, is now reaccepting Detroit's credit."
He went a step further.
"I will actually argue that the credit of Detroit will actually be better than the credit of other major cities that have not dealt with their" pension and health care liabilities, he testified.
Buckfire's remarks came as the city is expected to borrow $325 million in exit financing from Barclays to pay off its interest-rate swaps, pay off an earlier bankruptcy loan and boost its cash reserves. The city was previously expected to borrow $275 million.
Judge Steven Rhodes pressed Buckfire to say whether the city could procure unsecured exit financing instead of the Barclays loan, which would be secured by the city's income tax revenue.
Buckfire said it's possible at a premium of $500,000 to $1 million per year.

Kenneth Buckfire, copresident and cofounder of Miller Buckfire, speaks to the Detroit Free Press in July 2013. He testified on Tuesday, Sept. 30, that Detroit will be a good investment after it emerges from bankruptcy.(Photo: Kathleen Galligan Detroit Free Press)

Detroit City Council already approved the higher Barclays loan, but the city needs Rhodes to sign off on the loan when he decides whether to approve the city's sweeping restructuring plan.
Buckfire testified that the state's Financial Review Commission is crucial to providing "another check and balance" for the city and will give lenders confidence in Detroit's finances.
"We believe that will give the city the ability to access capital post-bankruptcy at the lowest possible cost," he said.
Still, he acknowledged that the city's plan to reinvest $1.4 billion over 10 years to rehabilitate basic services is a risk factor in the city's finances. That is, the city may not have enough money to pay for the upgraded services.
But he said the plan of adjustment allows the city to defer the reinvestment plan to free up enough cash to repay its debts, if necessary.
The trial continues Wednesday with billionaire buisnessman Dan Gilbert expected to testify about blight removal, and emergency manager Kevyn Orr to testify about the plan of adjustment.