May 5 (Bloomberg) -- Detroit won bankruptcy court approval of an explanatory statement that creditors will receive before they vote on a debt-adjustment proposal to reduce employee pensions and cut bond debt.
U.S. Bankruptcy Judge Steven Rhodes approved the city’s disclosure statement and a “plain language” explanation of how pension and retiree health benefits for current and former city employees would change under the plan to shrink the city’s $18 billion in debt. Both will be sent to creditors beginning May 12 under a schedule Rhodes approved last month.
The city earlier today filed the last changes to the plan it will make before creditors vote. It included details of deals reached in recent weeks with current and retired workers.
The plan to is built around an $816 million offer from state officials and private foundations to help shore up two underfunded retirement systems in exchange for a promise that the city’s collection of rare art, housed at the Detroit Institute of Arts, won’t be sold.
On May 12, the city will begin mailing its employees a disclosure statement and a letter explaining the plan and how it might affect creditors. The creditors, including current and retired workers, have until July 11 to turn in their ballots. The city will file the results with the court on July 21.
If enough workers and retirees support the plan, police officers and firefighters will receive all their normal monthly retirement payments, and general employees would see monthly payments reduced by 4.5 percent. A previous version of the plan proposed cuts of 6 percent and 26 percent, respectively.
To lock in the $816 million, 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.
Rhodes will take the voting into account when he decides whether to approve the plan. Under the U.S. Bankruptcy Code, as long as at least one group of creditors votes in favor of the plan, Rhodes can approve it over the objections of the others.
Michigan’s largest city filed for bankruptcy in July saying it couldn’t meet financial obligations and provide adequate services. Since then, it has been negotiating with creditors including public pension systems and unions.
Opponents of the bankruptcy plan include bond insurers, some bondholders and some Detroit suburbs that are customers of the city’s water and sewage department.
Rhodes has said in court that he expects the city and creditors still opposed to the plan to keep negotiating, even after they start a hearing in July over whether the proposal should be approved.
The case is In re City of Detroit, 13-bk-53846, U.S. Bankruptcy Court, Eastern District of Michigan (Detroit).
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