Tags: Detroit | creditors | pension | bankruptcy

Detroit Nears Agreements With More Creditors on Plan

Thursday, 17 April 2014 01:47 PM

Detroit is close to agreements with more creditor groups on a plan to shrink about $18 billion in debt, lawyers for the city said as they asked a judge to allow the proposal to be sent out for a vote.

“We have made, in our view, very significant progress,” David Heiman, a lawyer for the city with Jones Day, told U.S. Bankruptcy Judge Steven Rhodes at a hearing today in Detroit.

The city reached agreements two days ago with its two pension systems, after settling with some bondholders last week. Pending accords may push back the deadlines for creditor votes by 11 or 12 days, potentially delaying a hearing set for July where Rhodes will consider approving the plan to end the largest-ever U.S. municipal bankruptcy, said Bruce Bennett, another Jones Day lawyer representing Detroit.

Detroit officials are asking Rhodes to approve a disclosure statement explaining the city’s debt-adjustment plan to creditors and to let the company put the plan to a vote. Creditors would have May and June to vote if Rhodes approves.

Today, Rhodes ordered Detroit and its suburbs to work with a federal mediator in talks on a proposed regional water authority. Oakland and Macomb counties, customers of the city’s water and sewer department, opposed mediation while Wayne County, also a customer, asked the judge to order it.

The parties broke off negotiations earlier this year. Detroit’s emergency manager, Kevyn Orr, is attempting to lease the city’s water and sewer department to the new regional authority, a plan suburban leaders have resisted.

‘Lost Forever’

“If we do not take advantage of this unique opportunity, the opportunity will in all likelihood be lost forever,” Rhodes said.

Detroit entered bankruptcy in July, saying it couldn’t meet financial obligations and provide essential services. Since then, the city and creditors including bond insurers, public pension systems and unions have negotiated over cuts.

Under a proposal announced April 15, Orr agreed to pay retired city police officers and firefighters their full monthly pensions instead of asking them to accept a 6 percent cut.

Hours later, the pension system for general employees, such as city hall clerks and street workers, said it, too, had settled with Orr. Those workers’ pensions would fall by 4.5 percent instead of 26 percent, according to a person familiar with the talks.

Those accords followed an agreement last week that would pay investors who hold unlimited general obligation bonds 74 percent of what they are owed. Holders of limited GO bonds would get only 15 percent under Orr’s debt-adjustment plan.

Pension Boost

State political leaders and a group of foundations have promised to give the city $816 million to bolster its two underfunded pensions, but only if it can win support from employees and shield the city-owned artwork housed at the Detroit Institute of Arts from being sold to pay creditors.

About 30,000 retired city workers and current employees will be asked to vote on the deal. To lock in the money, a majority of those voting in each employee group must approve the city’s plan, and that majority must hold two-thirds of the claims of those voting.

Should enough retirees reject the plan, general workers would see their pension cut by about one-third and police and firefighters by 14 percent.

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Detroit is close to agreements with more creditor groups on a plan to shrink about $18 billion in debt, lawyers for the city said as they asked a judge to allow the proposal to be sent out for a vote.
Detroit, creditors, pension, bankruptcy
Thursday, 17 April 2014 01:47 PM
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