Governor Rick Snyder of Michigan said yesterday that the bondholders of the city of Detroit should expect to be “part of the process” of the largest municipal bankruptcy in U.S. history
“Realistically, if you step back, if you were lending to the city of Detroit in the last few years, didn’t you understand there were major issues and problems?” Snyder, a Republican, said on the CBS’s “Face the Nation” program. “Look at the yields they’re obtaining compared to other bonds. They were getting a premium.”
Detroit filed for bankruptcy July 18 after decades of decline left it too poor to pay billions of dollars owed to bondholders, retired police officers and current city workers.
The city faces about $18 billion of debt it must now restructure. The bankruptcy came after too few creditors would accept a plan offered by Emergency Manager Kevyn Orr to pay off $11.5 billion in unsecured debt with $2 billion in borrowed money -- an offer that would have provided as little as 10 cents on the dollar owed. It also would have cost pensioners some benefits.
The plight of city pensioners is “one of the other tragic situations” in the Detroit bankruptcy, Snyder said on CBS. He said that during discussions with creditors, “no one” wanted to represent retirees, so he has asked the federal judge in the case to assemble a group of retirees to speak for them.
“Short-term through the end of the year, there won’t be any change,” Snyder said. “Beyond that, the real question also is, to the degree those pension plans are funded, that they’re our assets, that they are not part of this process.”
“It’s the unfunded piece, and there’s a terrible history there of mismanagement and poor investment that should get aired out in public and should be part of this discussion,” Snyder said on CBS.
Detroit Mayor Dave Bing said he isn’t asking for a federal bailout.
“I think it’s very difficult right now to ask directly for support,” Bing said on ABC’s “This Week.” Asked if the city would get a federal bailout, Bing said, “Not yet.”
“We’re not the only city that’s going to struggle through what we’re going through,” Bing said. “We may be one of the first. We are the largest, but we absolutely will not be the last. And so we have got to set a bench mark in terms of how to fix our cities and come back from this tragedy.”
Snyder said on NBC Detroit would have continued to have “gone further downhill” if the city hadn’t filed for bankruptcy. On CBS’s “Face the Nation,” Snyder said he also doesn’t expect a federal bailout.
“This is a very tough decision, but it’s the right decision,” Snyder said on NBC’s “Meet the Press” yesterday. “The citizens of Detroit deserve better than they’re getting today. There were no other viable options.”
Emergency Manager Orr said on “Fox News Sunday” that the city wasn’t expecting help from the federal government, though it would welcome some assistance.
“We’ve operated on the assumption that we have to solve this problem on our own,” Orr said. “We are not waiting for the calvary to rescue us.”
Michigan’s largest city joins Jefferson County, Alabama, and San Bernardino and Stockton in California, in bankruptcy.
A state court judge ordered Snyder to withdraw the bankruptcy petition on July 19, claiming the case violates Michigan’s constitution. The state is seeking to appeal the order.
Kenneth Klee, a lawyer who is leading the bankruptcy restructuring of Jefferson County, said a state judge can’t force Detroit out of federal bankruptcy, even if Snyder agrees to try to withdraw.
A federal judge would have to agree to dismiss the case, said Klee, of Klee Tuchin Bogdanoff & Stern LLP in Los Angeles.
Under the protection of Chapter 9 of the U.S. Bankruptcy Code, most lawsuits against a city are temporarily barred so the municipality can reorganize its operations and debt without distraction.
Orr and Snyder last week said Detroit’s crisis -- 60 years in the making -- would take time to resolve. Orr said the decision to enter bankruptcy came after a long build-up of resistance to his plans and what he called an olive-branch approach to creditors.
“What did we get for that?” Orr asked. “We’re getting sued, consistently.”
Detroit residents should see improvements in services within 60 days as he shores up funding, Orr said. He said he has no plans to sell assets such as the city-owned collection at the Detroit Institute of Arts.