Detroit Emergency Manager Kevyn Orr said time is running out for creditors to reach an agreement with the city on a plan to resolve the biggest U.S. municipal bankruptcy by reducing $18 billion in debt.
Creditors know all about the city’s finances and don’t need more information, Orr said yesterday at a conference in New York sponsored by the Manhattan Institute for Policy Research.
Orr said that in the next couple of weeks, he wants enough agreement among creditors to be able to enact a debt-adjustment plan later this year. Detroit entered bankruptcy July 18.
“We’re past the point of having the luxury of having a lot more time to convince folks,” Orr said a day before the one-year mark of his appointment under a state law that gives him authority over Detroit’s finances and operations.
The city on April 14 will ask a judge to let it seek votes from retirees, bondholders and other creditors on Orr’s debt-reduction plan, filed Feb. 21. Winning support from retirees is necessary for the city to lock in funding from the state and nonprofit foundations seeking to protect city-owned artwork, Orr said yesterday in an interview. His plan offers bondholders as little as 20 cents on the dollar while proposing pension benefit cuts of as much as 34 percent.
A court-appointed mediator is helping the city negotiate with creditors. Private foundations and Governor Rick Snyder have offered a combined $815 million to reduce the size of pension benefit cuts.
In return, the Detroit Institute of Art collection would be shielded from liquidation to pay off creditors. Orr also proposed spending $1.5 billion to improve city services such as buses and technology.
Without a deal, the city may have to battle its unions, retired workers, bondholders and bond insurers to win approval of Orr’s plan. Unions are fighting in an appellate court to have the bankruptcy dismissed, bond insurers have sued over proposed cuts to general-obligation bonds, and retirees say the plan’s pension cuts may push many of them into poverty.
Detroit has filed a lawsuit aimed at voiding $1.44 billion in pension-related debt. Orr is attempting to lease the city’s water and sewer department to a new regional public authority, a plan suburban leaders have resisted.
Orr appeared with Snyder, who appointed him.
Snyder, a Republican seeking a second term this year, later told Bloomberg View that he expects Detroit to transition to oversight by a financial review board later this year. Detroit’s bankruptcy “needed to happen,” though it was distasteful, Snyder said.
Snyder said Detroit is undergoing a revitalization that includes new jobs, business investment and new, young residents moving to the city’s downtown and midtown areas.
“It’s poised as one of the great value opportunities, not just in the country but in the world as a place to invest, to live,” Snyder said.
After Orr and Snyder spoke, Detroit’s 5.5 percent sewage system bonds that mature in 2029 fell more than 5 percent to 94.7 cents on the dollar, according to data compiled by Bloomberg.
The federal government could help Detroit by approving his request to allow 50,000 skilled immigrants with math and technical degrees to live in the city under special visas for at least five years, Snyder said. Detroit’s population loss -- 25 percent since the 2000 census -- has resulted in an estimated 78,000 empty buildings and swaths of blight.
“I’m the most pro-immigration governor in the country,” Snyder said. “The tough part is politics are still messing it up.”
Separately, U.S. District Judge Steven Rhodes, who is overseeing the bankruptcy, ordered “all interested parties” to express any objections he has to appointing his own expert witnesses in the case.
Rhodes said in a court filing yesterday that he seeks the witnesses to “provide a report and to give testimony regarding the feasibility of the city’s plan of adjustment and the reasonableness of the city’s assumptions regarding its revenues, expenses and plan payments,” according to the filing.
Rhodes set an April 2 hearing on the matter.
The case is In re City of Detroit, 13-bk-53846, U.S. Bankruptcy Court, Eastern District of Michigan (Detroit).
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