Detroit Judge Trims Disputes for August Bankruptcy Trial

The federal judge overseeing Detroit’s record $18 billion bankruptcy is trying to reduce the number of legal disputes he must resolve before the start of trial on the city’s debt-adjustment plan next month.

U.S. Bankruptcy Judge Steven Rhodes today began two days of hearings on about a half-dozen technical matters raised by opponents of the bankruptcy, including whether the counties surrounding Detroit have a right to challenge the city’s plan.

By culling the issues, Rhodes is seeking to focus the trial on disputes over the basic facts underlying the city’s proposal. Detroit is trying to win court permission to cut at least $7.4 billion in unsecured debt owed to bondholders, public employees and retirees.

Under the city’s plan, millions of dollars would be taken from the Detroit Water and Sewerage Department and used to bolster the city’s pension system. The city argues the department, which also provides services to three outlying counties, has been underpaying the system for years.

“We have a huge interest in making sure that the DWSD plan is successful,” said Allan Brilliant, a bankruptcy attorney for Macomb County.

No Right

The city said the counties don’t have a right to challenge how the debt plan affects the department because they aren’t creditors and the DWSD hasn’t violated any of its water and sewage contracts. The counties want to argue that the plan won’t work.

Two other issues involved public safety employees. Firefighters are protesting limits the plan imposes on contract talks for 10 years, and attorneys for victims of police abuse said that lawsuits involving police officers shouldn’t be dismissed under the plan.

Rhodes, who didn’t rule on any of the matters, will hear more arguments tomorrow.

The city filed for bankruptcy a year ago this week, saying that years of decline and the disappearance of manufacturing jobs left it unable to meet financial obligations while still providing basic services to its 700,000 people.

Led by emergency financial manager Kevyn Orr, Detroit has proposed cutting some retirement benefits and reducing payments to some bondholders. Next month, Rhodes will consider whether the plan is fair to creditors and feasible. Dozens of witnesses are scheduled to testify.

Art Plan

As part of the plan, state lawmakers, private foundations and the Detroit Institute of Arts agreed to contribute more than $650 million to the city’s pension system in return for a guarantee that the city-owned art museum and its masterworks would be protected from creditors.

Since that deal was announced, the DIA has been raising money from donors for its $100 million contribution. Today museum officials announced they had commitments for $80 million so far, including recent pledges of $10 million from Roger S. Penske and Penske Corp., $5 million from DTE Energy and $5 million from Quicken Loans and a related company, Rock Ventures Family of Companies.

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: Steven Church in in Detroit federal court at schurch3@bloomberg.net

To contact the editors responsible for this story: Andrew Dunn at adunn8@bloomberg.net Joe Schneider

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