Kevyn Orr, Detroit’s emergency financial manager, said he wants debt-cutting agreements with retirees and city employees by early next week to give 170,000 creditors a clearer picture of a bankruptcy plan they’ll vote on starting next month.
Court mediators today announced an agreement for the bankrupt city to pay some bondholders 74 percent of $388 million they are owed. The plan would shift about half the remaining $100 million to pension systems, which face reductions under Orr’s proposal to cut Detroit’s $18 billion debt.
Orr, who had initially proposed paying general-obligation bondholders 15 cents on the dollar, said in an interview at Bloomberg News headquarters in New York that the deal should make creditors realize time is short.
“It’s in everybody’s interest to get aboard this train,” he said. “This train is leaving the station one way or another.”
Detroit filed for bankruptcy in July, saying it couldn’t meet its financial obligations and still provide services. The city has since been in negotiations over cuts with municipal unions, retired workers and bond insurers.
Court mediators have forged a deal with private foundations, the state of Michigan and the Detroit Institute of Arts to donate $816 million to the pension funds. In return, the city’s art collection would be placed in a trust and shielded from a forced sale to pay creditors.
The $350 million in state money pledged by Republican Governor Rick Snyder still must be approved by the legislature.
Retirees and city unions have opposed the art deal, saying it would harm those who rely on pensions. Orr has urged them to accept the money rather than face deeper benefit cuts.
Detroit could get four offers to turn some of the art collection into as much as $2 billion in cash, either as a loan backed by the works or as a purchase, creditors including bond insurers and a union said in a court filing today.
The creditors asked U.S. Bankruptcy Judge Steven Rhodes to force the city to cooperate with the potential bidders, who would like to investigate the value of the art.
Orr dismissed the proposal, saying any sale would not only kill the proposal to pump $816 million into the pension systems, it would also hurt the city’s quality of life.
“Just like New York didn’t have to build co-ops in Central Park when it was going through its troubles, Detroit should not have to denude itself,” he said.
The case is In re City of Detroit, 13-bk-53846, U.S. Bankruptcy Court, Eastern District of Michigan (Detroit).
To contact the reporter on this story: Chris Christoff in New York at firstname.lastname@example.org