Statement on Detroit, Michigan

July 26, 2013

As of June 30, 2013, Assured Guaranty insured net par of $793 million of City of Detroit water revenue bonds and $1.0 billion of sewer revenue bonds. Both the water and sewer systems provide services to areas that extend significantly beyond the city limits; these obligations are secured by a lien on “special revenues,” and therefore timely payment of debt service should be insulated from the financial difficulties of Detroit. Additionally, Assured Guaranty has a total of $321 million of net par in general obligation and general fund exposures to the City of Detroit.

Despite the City’s bankruptcy filing, Assured Guaranty is prepared to work with the Emergency Manager, Governor and other capital markets creditors to achieve a fair and equitable resolution for all parties. As always, investors that hold bonds insured by Assured Guaranty can be certain that they will continue to receive uninterrupted full and timely payment of scheduled principal and interest when due.

 

Details of Assured Guaranty’s Exposure to Detroit

As of 6/30/13 ($ in millions)

 

Municipal Utilities

Exposure

Net Par Outstanding

Years Insured

Water

$ 793

1997, 2001, 2003, 2004, 2006, 2008

Sewer

$ 1,040

1993, 1998, 1999, 2001, 2003, 2004, 2006, 2007, 2008, 2009, 2012

Total

$ 1,833

 

 

 

General Obligation / General Fund

Exposure

Net Par Outstanding

Years Insured

General Obligation Unlimited Tax

$ 146

1999, 2001, 2005, 2008

Certificates of Participation(1)

$ 175

2005, 2006

Total

$ 321

 

 

The average annual debt service of Assured Guaranty’s General Obligation / General Fund exposure during the next 10 years is $27.7 million.

 

    (1) Assured Guaranty’s exposure to the Certificates of Participation is through a reinsurance transaction.

 

 

Water Revenue Bonds - $793 million net par outstanding

Security: The principal of and interest on the water revenue bonds are secured by a lien on the net revenues of the water supply system. In fiscal year 2012, net revenues covered debt service on first and second lien bonds 1.18 times.

Service Area: The City’s water supply system serves approximately 3.8 million people or 38% of the population of the State of Michigan. The water supply system provides retail service to customers within the City and wholesale service under contracts with 127 other municipalities (which in turn provide service to their retail rate base). In fiscal year 2012, wholesale purchasers, all of which are located outside the City of Detroit, accounted for 81% of system usage billed, 77% of system operating revenues, and 81% of the population served by the City’s water supply system.

 

Sewer Revenue Bonds - $1,040 million net par outstanding

Security: The principal of and interest on the sewer revenue bonds are secured by a lien on the net revenues of the sewage disposal system. In fiscal year 2012, net revenues covered debt service on first and second lien bonds 1.36 times.

Service Area: The City’s sewage disposal system serves approximately 2.8 million people or 28% of the population of the State of Michigan. The sewage disposal system provides retail service to customers within the City and wholesale service under contracts with 76 other municipalities (which in turn provide service to their retail rate base). In fiscal year 2012, wholesale purchasers, all of which are located outside the City of Detroit, accounted for 82% of system usage billed, 56% of system operating revenues, and 75% of the population served by the City’s sewage disposal system.

 

General Obligation Unlimited Tax - $146 million net par outstanding

Security: The Unlimited Tax Bonds are general obligations of the City, payable from the general funds of the City, and secured by a pledge of the unlimited tax, full faith, credit and resources of the City. The City is authorized and required by law to levy and collect ad valorem taxes upon all taxable property in the City, without limitation as to rate or amount, to pay principal of and interest on the Unlimited Tax Bonds when due.

 

Certificates of Participation - $175 million net par outstanding

Security: The City’s obligations to make COPs payments are unsecured contractual obligations of the City, enforceable in the same manner as any other contractual obligation of the City. The City’s unconditional contractual obligation to make COPs payments is not ‘subject to appropriation’ (i.e., the City’s contractual obligation is not subject to termination if the City were to fail to appropriate sufficient amounts for the required payments in any single year). The City is legally bound to make all COPs payments for the full term of the COPs, and statutory remedies exist to enforce the City’s obligations.