Case Study

Greater Detroit Resource Recovery

The Authority achieved approximately $90 million in present value savings from the refunding which reduced the annual disposal fees paid by the City of Detroit, the principal user of the facility. The development of the financing plan was complicated by significant contractual disputes with the plant operator, Ogden Martin, and a preexisting lease structure with Philip Morris as the majority equity owner. The refunding plan split the issuance into $313 million in senior bonds and $93 million in subordinated bonds. The bonds had four separate sources of revenue to secure the credit structure: the limited GO of the City to pay its annual service fee, the pledge of an intercept of state aid, the pledge to impose user charges and the use of bond insurance. The bonds were sold in March of 1996.

PFM was actively involved in developing the financing plan, selecting the underwriter, implementing the plan and pricing the bonds. PFM's involvement in developing the new credit structure, convincing the rating agencies and insurers of the strength of the credit structure and its positive impact on the City's credit standing produced cost effective insurance bids on both the senior and subordinated tranches of debt. The use of the state aid intercept as additional security required coordination with the City's other funding needs. In order to provide more room under the Intercept ceiling, we had to convince the rating agencies and insurers that a reduction in the debt service coverage for the junior lien bonds would still provide adequate coverage. The transaction was well received by the market with pricing improved over the most recent City of Detroit State Intercept bonds and the credit effort contributed to the up-grading of the City's credit rating.