July 18, 2013 at 1:00 am Creditors to fight Detroit insolvency claim Robert Snell, Daniel Howes, Chad Livengood and David Shepardson 651 Comments Detroit— The city of Detroit filed the largest municipal bankruptcy case in U.S. history Thursday, culminating a decades-long slide that transformed the nation’s iconic industrial town into a model of urban decline crippled by population loss, a dwindling tax base and financial problems. Gov. Rick Snyder justified approving the historic filing by reciting a litany of the city’s ills, including more than $18 billion in debt, maxed-out tax rates, the highest murder rate in 40 years, 78,000 abandoned buildings and a half-century of residential flight. He said the city failed to provide basic services to residents or pay creditors. The filing, which has broad implications for the nation’s municipal bond market and sanctity of public pension funds, was met with outrage, disappointment and a vow to fight. Some creditors adopted a war stance, threatening a prolonged battle. Others accused Emergency Manager Kevyn Orr of failing to negotiate in good faith — an essential requirement for approval of a bankruptcy petition — during his month-long push to secure concessions from creditors, including deep cuts to pensions. “It’s war,” said George Orzech, chairman of the city’s Police and Fire pension fund. The 16-page bankruptcy petition was shrouded in secrecy and filed amid drama. Snyder planned to file the bankruptcy petition today in U.S. District Court but reversed course after learning the city’s pension funds planned to ask a judge to block a filing, according to a source. The petition was filed at 4:06 p.m. Thursday and cost the bankrupt city $1,213. Eighteen minutes later — too late to make a difference — Ingham County Circuit Judge Rosemarie Aquilina signed a restraining order. Snyder authorized Orr to file bankruptcy under a controversial law the Legislature passed in December that replaced the previous emergency manager law voters repealed last November. “There were no other viable alternatives,” Snyder told reporters Thursday. “We have a great city but a city that has been going downhill for 60 years.” Orr said he will continue trying to secure deals with additional creditors that could ease the city’s path through bankruptcy court. He said he hoped the city could restructure and emerge from bankruptcy court next year, by late summer or early fall. During a month of negotiations, Orr has reached a settlement with only two creditors: Bank of America Corp. and UBS AG. They have agreed to accept 75 cents on the dollar for approximately $340 million in swaps liabilities, according to a source familiar with the deal. Orr had harsh words for those who tried to block the city’s restructuring efforts. “We don’t have time for more delaying tactics,” Orr said. Orr insisted he “bent over backwards” and negotiated in good faith during more than 100 meetings with creditors. In court filings late Thursday, he said it was impossible to reach an accord with “many tens of thousands of creditors” and accused unions of refusing to negotiate on behalf of the city’s 20,000 retirees. The filings also indicated that Orr may be open to offers on the Detroit Institute of Arts’ collection, which is worth billions. Orr said he will continue to “engage all interested parties in dialogue regarding the City-owned art collection” and “reach a resolution with respect to such assets that will maximize the long term benefits to the City and the prospects for a successful restructuring.” Orr also will continue to evaluate how much money the city could collect by selling other assets, including Belle Isle, the Detroit-Windsor Tunnel, real estate and municipal parking operations. Mayor Dave Bing, whose powers were usurped when the governor appointed Orr in March, spoke of Thursday’s moves with a mix of resignation and optimism. “As tough as this is, I didn’t want to go in this direction,” Bing said. “Now that we are here, we have to make the best of it. If it is going to make citizens better off, this is a new start for us.” But not until creditors feel varying degrees of pain, experts said. Unsecured creditors could take the biggest hit in bankruptcy court. Orr wants them to share a $2 billion payout on approximately $11.5 billion worth of debt, which includes an estimated $9.2 billion in health and pension benefits and $530 million in general-obligation bonds. “Pain is going to be handed out to a number of creditors simply because Detroit has no other option,” said Dan Heckman, senior fixed income strategist with U.S. Bank Wealth Management in Minneapolis. Orr chronicled the city’s economic collapse in a detailed plan presented to creditors June 14 — a proposal that drew criticism from some who said the cuts were too deep and did not include the sale of city assets, including Belle Isle and a Detroit Institute of Arts collection. He proposed paying most of the money owed to secured creditors while pension funds, unions and unsecured bondholders would receive, in some cases, as little as 10 cents on the dollar. From The Detroit News: detroitnews/article/20130718/METRO01/307180103#ixzz2ZUUBcvtk
Posted on: Fri, 19 Jul 2013 11:41:07 +0000
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