DETROIT (Reuters) - Investor Warren Buffett said Tuesday he expects the market for Detroit’s debt to pick up again and bond insurers to begin backing the debt once the city submits an appropriate recovery plan to bankruptcy court.
Buffett’s Berkshire Hathaway Assurance Corp. re-insures more than $380 million of Detroit’s secured sewer debt that was originally insured by Financial Guaranty Insurance Co. The city, which is awaiting a decision from a federal judge on whether it is eligible for bankruptcy, has $18.5 billion in debt and liabilities.
Speaking at a Goldman Sachs (GS.N) event to promote entrepreneurship in Detroit, the Berkshire Hathaway (BRKa.N) chairman and chief executive said the market for Detroit’s debt would pick up “as soon as a plan comes through that makes sense.”
Detroit still has assets that appeal to investors, Buffett said. “The resources in terms of the people, the businesses, the history and the culture are all here to have a great city in the future,” he said. “And it will require probably some sort of plan to readjust the debt of the past and ongoing expenses.”
Defaults by Detroit since June on its pension debt and some of its general obligation bonds have worried the municipal bond market, where states, cities, schools and other borrow money. Meanwhile, Detroit’s state-appointed emergency manager Kevyn Orr has proposed a $350 million debtor-in-possession financing that would be the first in a municipal bankruptcy if the plan wins court approval.
Orr has also floated the idea of a new regional authority for the city’s water and sewer operations that could impair the value of outstanding Detroit water and sewer bonds, according to credit rating agencies.
Buffett pointed to bankrupt Jefferson County, Alabama, which successfully sold $1.78 billion of sewer-system debt earlier this month to pay off $3.1 billion of defaulted sewer debt at about 54 cents on the dollar. A portion of the debt carried insurance from Assured Guaranty Municipal Corp.
U.S. Bankruptcy Judge Steven Rhodes will announce on December 3 if Detroit meets the bankruptcy eligibility requirements under federal law. In a nine-day trial that wrapped up earlier this month, the city argued that it is insolvent and that it acted in good faith when it said negotiations with its creditors were impractical.
Detroit will be able to submit a plan of adjustment if it is found eligible by Judge Rhodes.
Buffett and Goldman Sachs CEO Lloyd Blankfein said Tuesday that they were optimistic about Detroit’s revitalization efforts, comparing the beleaguered city to 1970s New York, which also faced staggering financial difficulties.
Blankfein said New York was able to recover and thrive after its financial crisis.
They spoke at a news conference as Goldman announced it would expand its 10,000 Small Businesses program to Detroit with a $20 million donation to local colleges and non-profits to boost entrepreneurship.
Reporting by Joseph Lichterman; Editing by Kenneth Barry