The WSJ did a story entitled "Detroit Bankruptcy: Bond Insurers Made Last Ditch . . ." In it, they say that Ambac Assurance disclosed $170 million of general obligation bond exposure on July 8.
If you read this article, you may see an outline of what a potential agreement might look like between Orr and the bond insurers. They propose to wrap new g.o bonds plus refund the existing water and sewer bonds and re-issue these with the wider geographical authority Orr is seeking. There are also excess reserves not presently needed for interest coverage which would become available to Detroit were MBIA, AGO and Ambac to sign off on a refunding. These discussions have been on-going and were not rejected, they simply were halted or interrupted so Detroit could file their bankruptcy plan.
MBIA/Natl has $110 million of G.O. exposure. Even if you assumed the worse case --- that Orr was successful in eliminating 90% of the debt --- the cost would be less than $100 million. And that's not going to happen. Just think of the stakeholders that would be affected if a city could put general obligation debt into unsecured creditor status. Just think what the cost would be, going forward, for cities and municipalities were this to happen. Detroit could turn out to be a windfall for National if it drives up interest rates on tax-frees and also anchors heightened default risk for investors. They would absolutely demand bond insurance protection.
National has insured an additional $2.4 billion of water and sewer revenue bonds. These are all current. Orr has previously indicated that he would like to expand the water and sewage jurisdiction beyond Detroit to include outlying areas. Should be follow through, these existing bonds would be refunded. That scenario would eliminate these bonds entirely from MBIA's portfolio.