February 14, 2020
Good Morning! In this morning’s eValentines Blog, we consider an agreement Puerto Rico has reached with some of its municipal bondholders which could reduce its debt service in excess of 50%, thereby easing the process for the Commonwealth to emerge from its quasi-chapter 9 municipal bankruptcy, according to the PROMESA Board; then we venture north to the chilly but turbulent waters in the Motor City.
Reducing Puerto Rico’s Costly Debt Service. Puerto Rico reached an agreement with some municipal bondholders, which is projected to cut its debt service by 56% and make it easier for the commonwealth to emerge from its quasi-chapter 9 municipal bankruptcy, according to the PROMESA Financial Oversight and Management Board. In exchange, the PROMESA Board agreed to drop its challenge that $6 billion in bonds were invalid because they exceeded legal debt limits, with this most recent agreement following in the wake of one struck with a smaller a smaller group of bondholders: together, the two agreements allow Puerto Rico to reduce its debt service by about two-thirds, to $39.7 billion from $90.4 billion, and reduce its maximum annual debt service by 70%, to less than $1.5 billion a year. The new agreement comes in the wake of ones already reached by the PROMESA Board with retirees and public unions, with the agreements due to be part of an amended quasi chapter 9 plan of debt adjustment the Board will file by the end of this month: the next steps are hearings and a final confirmation hearing scheduled for October. Here, the new bondholder agreement was approved by most of the members of the PROMESA Oversight Board; however, it appears certain to encounter opposition from the Governor, other debtors, and groups opposed to proposed changes including pension cuts.
In a statement, Oversight Board Chair Jose Carrion described the agreement as more favorable than earlier proposals, claiming it would completely resolve legacy debt in two decades, noting: “It has significantly more support from bondholders, further facilitating Puerto Rico’s exit from the bankruptcy that has stretched over three years.” PROMESA Board Executive Director Natalie Jaresko, as part of the same statement, said that the support enhances Board’s ability to exit bankruptcy this year “and to the beginning of a true economic recovery.” Under the proposed new agreement, the pact would cut some $35 billion in debt and other liabilities by 70%, to $11 billion from $24 billion, and it appears to have garnered the support of holders of $8 billion of bonds. As proposed, general obligation bondholders would realize an average 29% cut, while the reduction for holders of Puerto Rico Public Buildings Authority bonds would average 23%. Commonwealth creditors would receive $10.7 billion in new debt, half in general obligation municipal bonds and half in COFINA Junior Lien bonds, as well as $3.8 billion in cash.
While the PROMESA Board agreed to not challenge the legality of $6 billion in bonds, it will continue to challenge others, including ones issued by the Employee Retirement System, and the Board will seek to recover fees earned by banks, law firms and other parties related to bonds issued in excess of Puerto Rico’s constitutional debt limit.
Aging Motor City Public Infrastructure. The conditions of seawalls along Detroit’s riverfront in the wake of the collapse of a dock has raised apprehensions with regard to the city’s aging public infrastructure—especially at a time when the Trump Administration’s much ballyhooed and promised infrastructure remains nowhere to be seen. The city has directed inspectors to send correction orders to riverfront property owners, and has issued more than 500 blight tickets. The Michigan Department of Environment, Great Lakes and Energy staff inspected a pond at the end of last month at a site on the Detroit River, a site with a previous history of contamination, where construction aggregate spilled following a dock collapse last Thanksgiving. The city’s inspectors have found worrisome seawall and waterfront conditions across the length of Detroit’s riverfront in the wake of a dock collapse at a contaminated riverside site where the state has determined company cleanup efforts have been inadequate.
Indeed, the city has inspected all 152 properties along the Detroit River in the wake of the aggregate spill near Historic Fort Wayne and issued approximately $195,000 in fines for more than 500 blight violations on five plots of land, with the sudden burst of inspections coming amidst over increased demands for action and state concerns over perceived gaps in response plans by the site’s owner and the limestone storage and shipping company which operated there. Indeed, in the wake of last November’s Revere Dock collapse, conditions have deteriorated, sending limestone construction aggregate material into the river—creating both health and public safety apprehensions. The former Revere Copper and Brass Inc. property has been, for decades, listed as contaminated due to past use of uranium and other dangerous chemicals in the 1940s and 1950s for the Manhattan Project, research and development undertaking during World War II and completed in 1956 that produced the first nuclear weapons. It was led by the United States with the support of the United Kingdom and Canada.
An environmental cleanup in the late 1990s removed most contamination, but some remains, according to the Michigan Department of Environment, Great Lakes and Energy. Authorities discovered in the wake of the collapse that the site owner since 2015, Revere Dock LLC, had for months been allowing illegal limestone storage, without a permit. Tenant Detroit Bulk Storage is now moving those materials off the site to come into compliance, according to Jessica Knight, chief enforcement officer for Detroit’s Buildings, Safety Engineering and Environmental Department. A firm representing Revere Dock noted: “Both the city and Revere Dock have asked Detroit Bulk Storage to remove the aggregate currently stockpiled on site…They are removing material daily and reporting on progress to the city and Revere Dock.” Mayhap the response from Revere Dock and Detroit Bulk Storage has been spurred as fines levied by the city now are in excess of $83,000 in fines as of Thursday—and it faces a suit filed by the city in late January. Indeed, at the end of last month, Mayor Mike Duggan noted the city needs more aggressive inspections: “Our (Buildings, Safety Engineering and Environmental Department (BSEED)), they are out now on the riverfront walking every single site, writing tickets…We had a couple things happening. One is, the people (at the Revere Dock site) didn’t have the permit. But the other thing is, with the rising water levels coming from climate change…it’s eroding the shorelines across the state.”
Indeed, lakeshore erosion in Michigan from high water levels prompted state legislators in December to urge Gov. Gretchen Whitmer to declare a state of emergency; while, for the Motor City, the issue is aggravated, because, according to the Michigan Department of Environment, Great Lakes, and Energy: “Much of the Detroit River shoreline is contaminated from historic fill materials and legacy industrial operations.”
Mayor Duggan noted: “We’re going to have to shore a lot of them up,” referring to property along the city’s waterfront: (The Revere Dock) case should not have happened, but we’re making darn sure it doesn’t happen again.”
Three or four BSEED property maintenance division inspectors traversed the length of the river in December and January, according to Ms. Knight, who said the building department does not normally inspect seawalls for stability, but decided to do so annually after the Revere Dock collapse, and consulting with the U.S. Army Corps of Engineers on methodology. BSEED also said it will inspect the Detroit River-adjacent properties and buildings annually instead of the usual every two years. Previously, no governmental entity was responsible for ongoing maintenance and inspection of seawalls and other waterfront structures in Detroit, according to Don Reinke, Chief of Compliance and Enforcement for the Corp’ Detroit District, which is responsible for permitting along navigable waterways, which requires keeping structures in working order; however, Corps regulations do not mandate inspections, and where cost is a factor, according to Mr. Reinke. BSEED was instructed to look for sinkholes—such as the growing, 12-foot-deep one on the Detroit Bulk Storage site—as well as erosion on the land side of the seawalls; storage of heavy materials on the land’s edge; shifting in seawall concrete; and other potential warning signs. As of Thursday, BSEED had issued more than 500 tickets to five properties for property maintenance violations on coastal lots, including unlawful storage of items outside commercial buildings, failure to maintain the premises, lack of certificate of compliance, unlawful occupancy of buildings, and unsafe conditions. Altogether, the City of Detroit has issued more than 500 blight tickets after inspecting all 152 properties along Detroit’s riverfront in the wake of the Nov. 26 Revere Dock collapse. It rendered more than $195,000 in fines as of Thursday.
The seawall problems are being handled separately from property rules, because the former was out of BSEED’s purview until now, according to Knight. The city sent warning letters, dubbed “correction orders.” Problem spots included overflow of water onto land, collapse or failure of the seawall and aggregate pushing up to the seawall causing it to be unsound, she said. The properties had until Feb. 3 to respond to the letters with independent engineering assessments of the stability of their seawalls. As of Thursday, Knight said, the city received six of these reports out of 152. Warning letters to be sent Monday will give property owners a seven-day extension. After that, the city would start fining them. If that does not work, litigation could be a next step, as with Revere Dock. Nick Leonard, the Executive Director of the Great Lakes Environmental Law Center, called the extent of seawall concerns “a bit surprising…I knew a lot of the docks and seawalls were from very old facilities…but I didn’t realize until we really started to look into this problem how grave it was and how multifaceted it was,” adding the Detroit-based nonprofit has seen local governments step in to fill holes in inspections as concerns over shoreline integrity mount around the Great Lakes.
The Michigan Dept. of Environment, Great Lakes, & Energy(EGLE) is assessing water samples taken last month from inside and outside an original 5-foot silt curtain Revere Dock installed around the collapse site to contain the materials. Revere Dock’s next deadline was Friday to submit an updated short-term response plan, and the agency expected to receive those additional details soon. The state called a first version filed with the state last month “inadequate,” and a second, filed two weeks later, failed to do enough to halt erosion into the river; did not adequately assess a growing, 12-foot-deep sinkhole; and included a plan for geotechnical measuring on the site which was assessed as “inappropriate.”
If there is good news, it is that the spill, at least so far, in a state where the terrible health and safety issues in Flint are in the back of many minds and hearts, the spill has, at least so far, not harmed drinking water quality, based on its testing and that of the Great Lakes Water Authority. EPA officials did find uranium, lead, and other chemicals during testing at the site in late December. One, a soil sample of lead, surpassed EPA’s threshold for removal management, according to EGLE. The state also noted its previous testing there “showed no radiation above background levels.”