Banking
Detroit bankruptcy bond fight a watershed for municipal market
DETROIT – The city of Detroit’s effort to declare some of its general obligation bonds as unsecured debt will be challenged in bankruptcy court Wednesday in what could be a precedent-setting turn in the largest-ever municipal bankruptcy in U.S. history.
The issue in front of federal bankruptcy Judge Steven Rhodes is whether a pledge of Detroit tax revenue to pay off the voter-approved bond issues is a binding obligation under Michigan law, as argued by bond insurers in two lawsuits, or merely a promise.
The outcome of the dispute could have a far-reaching impact on the $3.7 trillion municipal market, where general obligation bonds made up some 60 percent of the issues sold in the last decade.
That could reduce investor interest in not only any future Detroit borrowings but in debt from other Michigan municipalities, forcing them to pay higher interest rates. And it could trigger similar concerns for municipal borrowers in other states.
Investors always have considered the full faith and credit pledge by cities, school districts and other issuers to pay off those bonds “sacrosanct,” according to Natalie Cohen, the head of muni research at Wells Fargo Securities.
But Detroit’s effort to declare some of its GO bonds to be unsecured debt could change that assumption.
“This is a significant issue for the bond community, not just in Detroit but in all cases, because the implication is that if the court finds these aren’t secured, this will go far beyond Detroit,” said Michael Sweet, a bankruptcy attorney with Fox Rothschild in San Francisco.
The outcome could revolve around the meaning of the word “pledge” under Michigan law.
In the proceeding on Wednesday, Rhodes will hear Detroit’s argument that the city’s pledge to repay some $410 million of general obligation bonds outstanding as of the end of the city’s fiscal 2012 is far less than binding.
In their lawsuits, bond insurers on the hook for making up missed payments on the bonds have asked Rhodes to rule without hearing any testimony, in what is known as a summary judgment.
Rhodes could rule for either side, or he could send the matter to a trial and allow both sides to begin taking depositions and finding expert witnesses to support their arguments. In a December hearing, Rhodes said he might want testimony about how the dispute impacts other creditors.
PROMISE VS OBLIGATION
Detroit must treat the bonds as secured only if a legal lien exists, and under Michigan law, there is no lien, Detroit argues. When Detroit issued the bonds, its pledge to repay the borrowed funds, was, under state law, only a synonym for “‘promise,’ as in ‘I pledge allegiance to the flag,'” the city argued in a court filing.
The three bond insurance firms do not see it that way. National Public Finance Guarantee Corp, the public finance subsidiary of MBIA Inc, and Assured Guaranty Municipal Corp jointly filed one lawsuit, and Ambac Assurance Corp filed another, soon after Detroit defaulted on a $9.4 million interest payment last October 1. That was its first GO bond default under Kevyn Orr, the city’s state-appointed emergency manager.
They claim bondholders and the insurers have a statutory lien on property-tax revenue specifically earmarked for the bonds. Instead of repaying the bonds, the city is using that tax money for general purposes and has no right to do so, the insurers argue.
“Nothing in Chapter 9 or elsewhere in bankruptcy law allows the city to disregard the state law restrictions imposed on the restricted bond taxes and use the funds for unauthorized purposes,” said a court filing by National Public Finance and Assured.
But the city in its motion to dismiss the lawsuits counters that Chapter 9 of the U.S. Bankruptcy Code trumps state law while Detroit is in bankruptcy. The insurers are seeking protections granted under Chapter 9 only to creditors with a lien. Detroit further argues that the insurers lack standing to enforce state law provisions governing the bonds.
THE PRICE OF VICTORY
A lot is at stake for the insurers.
“Secured in this bankruptcy and not secured can mean the difference between getting paid in full and half your money,” said John Pottow, a professor at the University of Michigan Law School.
If Judge Rhodes rules in Detroit’s favor, the city could find itself paying unofficial penalties next time it seeks to borrow money, warned James Spiotto, managing director of Chapman Strategic Advisors.
Should Rhodes declare the GO bonds to be unsecured, Detroit could find itself paying an extra 200 basis points or more on future borrowings, he said. “Either your (market) access or costs or both will be impaired, and you’ll be paying more,” Spiotto said.
Michigan governments likely could see costs rise, too. And muni investors would be forced to sort through which states have laws and history that support the treatment of GO bonds as secured debt, Spiotto added.
If the bond insurers lose, the chief effect will be that liens and other protections will be better documented for future deals, said Sweet, the Fox, Rothschild bankruptcy lawyer.
“It doesn’t mean there won’t be deals,” he said. “They will just be more careful.”
– REUTERS
Banking
Millions of customers still stranded worldwide 24 hours after GT Bank online operations suffered attacks
By Yemie ADEOYE
GT Bank, one of Nigeria’s leading banks, with operations across Africa and the United kingdom, and with an asset base of about US$3.11 trillion is under a cyber attack which has left millions of its customers across the world stranded in the last 24 hours.
The bank which was renowned for its seamless online operations at inception has suffered dwindling online efficiency in recent years and this current attack didn’t come as a surprise to many of its numerous customers. However, it is becoming worrisome that over 24 hours after its online operations went down, the bank has not been able to arrest the situation and restore its online services.
Stranded GT Bank customers outside the banks premises
Several customers of the bank took to their X (formerly known as twitter) handles to express their frustrations at the bank, as several of the customers in the diaspora are unable to access their accounts and carry on with their transactions. A customer , Jeff55 who lamented on his X handle about the development, stated that it is a thing of shock that a bank of this size couldn’t afford to have the necessary tools and experts to ensure a full protection of its online operations in this age and time.
Another customer Dimma stated that while Cybersecurity training may seem tedious, the recent #GTBank hack is a stark reminder that everyone is just a click away from a devastating attack.
Several media organisations had reported that hackers have stolen GT Bank website, and intercepted customers Data in massive phishing operation.
At the time of filing this report, Biztellers.com.ng checks on the banks website shows that it is still down and unaccessible, and neither GT Bank media and communications unit nor any of its agencies or surrogates have commented officially on the development.
Says output surge buoyed by reforms he announced in May 2024 to address gaps in PIA
President Bola Ahmed Tinubu on Sunday declared a resurgence in the oil & gas industry, commending the increased crude production to 1.6 million barrels per day.
The president, who said this in a national broadcast, maintained that the resurgence was buoyed by the reforms he announced in May 2024 to address the gaps in the Petroleum Industry Act (PIA).
Nigeria’s crude oil output got a boost to 1.61 million barrels per day in July 2024 through the president’s directive and the industry leadership provided by the Nigerian National Petroleum Company Limited (NNPCL).
Acknowledging what he called a resurgence of the once-declining oil and gas industry in his Sunday-morning broadcast to the nation, President Tinubu said that oil investors are coming back to Nigeria.
He said; “Our once-declining oil and gas industry is experiencing a resurgence on the back of the reforms I announced in May 2024 to address the gaps in the Petroleum Industry Act. Last month, we increased our oil production to 1.61 million barrels per day, and our gas assets are receiving the attention they deserve. Investors are coming back, and we have already seen two Foreign Direct Investments signed of over half a billion dollars since then.
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“Fellow Nigerians, we are a country blessed with both oil and gas resources, but we met a country that had been dependent solely on oil-based petrol, neglecting its gas resources to power the economy.
We were also using our hard-earned foreign exchange to pay for and subsidise its use. To address this, we immediately launched our Compressed Natural Gas Initiative (CNG) to power our transportation economy and bring costs down.
This will save over two trillion Naira a month, being used to import PMS and AGO and free up our resources for more investment in healthcare and education.
“To this end, we will be distributing a million kits of extremely low or no cost to commercial vehicles that transport people and goods and who currently consume 80% of the imported PMS and AGO.
“We have started the distribution of conversion kits and the setting up of conversion centres across the country in conjunction with the private sector. We believe that this CNG initiative will reduce transportation costs by approximately 60 per cent and help to curb inflation.”
Plans are in top gear for the 11th Annual General Meeting (AGM) of the FBN Holdings Plc.
The management made this disclosure in a notice it filed with the Nigerian Exchange Limited (NGX) on Thursday, where it averred that it has not been served with any court order against the proposed AGM.
According to notice, which was signed by the acting Company Secretary, Adewale Arogundade, FBN Holding said, “The attention of FBN Holdings Plc (the Company) has been drawn to recent media reports purporting that the Company has received a Court Order stopping it from holding the Annual General Meeting (AGM) scheduled for August 15, 2023.
“We confirm that this assertion is a false narrative as the Company has, as at the date hereof, not been served with any court order to stop the forthcoming AGM.
“Suffice to mention that the AGM is a statutory meeting of Shareholders that must be held in accordance with the law, further to which the Company will notify the regulators and the public as appropriate if there is any lawful order to restrain the Company from conducting same.
“We hereby assure our esteemed Shareholders that the AGM shall hold on August 15, 2023, as planned and we look forward to their attendance and active participation at the meeting.”
However, court orders published in national dailies showed that the Federal High Court in Lagos had issued an order against the financial institution, barring it from holding its 11th AGM.
The order was entered pursuant to a petition by Olusegun Onagoruwa, in suit No: FHC/L/CP/1271/2022. It was addressed to the bank and some other bank officials.
It read, “Take notice that unless you obey the directives in the judicial order contained in the order made on July 15, 2022, by the Federal High Court, Lagos, by refraining from proceeding with the 11th Annual General Meeting of FBN Holdings Limited proposed for August 15, 2023, from seeking approval to issue or raise share capital in any manner whatsoever, from appointing or confirming the appointment of new directors, or in any other manner taking any step towards implementing, actualising enforcing resolution of the 10th Annual General Meeting of FBN Holdings Plc held on June 20, 2022, or in any other manner overreaching, disobeying or undermining the said order of a court, you will be guilty of contempt of court and you will be liable to be committed to prison and to there imprisoned.”
Biztellers brought you a report that a segment of shareholders had staged a protest at the headquarters of the bank on Monday, calling for the AGM to be held, as well as soliciting regulatory interventions.
It is expected that at the AGM, FHN Holdings is poised to breathe life into plans to seek shareholders’ approval to raise N150bn fresh capital via a rights issue and elect new directors including billionaire, Femi Otedola and Samson Ariyibi among other resolutions.
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