Detroit May File $18 Billion Bankruptcy Plan in Two Weeks
Detroit’s emergency financial manager may file a proposed debt-adjustment plan in federal court in about two weeks, an action that would start the final phase in the city’s record $18 billion municipal bankruptcy.
The manager, Kevyn Orr, has given a copy of the plan to creditors, his spokesman, Bill Nowling, said yesterday in a statement. Creditors will have a chance to vote on the proposal once it’s filed in U.S. Bankruptcy Court in Detroit and the judge determines it gives enough information.
The plan reflects details already presented to creditors who have been negotiating with the city since it filed for bankruptcy in July, Orr said. U.S. Bankruptcy Judge Steven Rhodes had told the city he wanted it to file a plan by March 1.
“The longer we remain entrenched in our positions and fail to reach an agreement, the worse life gets for Detroit’s 700,000 residents and the greater our collective challenges become,” Orr said in the statement, which didn’t provide any details of the proposal.
Since it filed the biggest municipal bankruptcy in U.S. history, the city has fought in court with municipal unions, retired city workers and bondholders over potential cuts, while also meeting them in confidential mediation sessions overseen by Gerald Rosen, the chief federal judge in Detroit.
Under Michigan’s emergency financial manager law, Orr has broad powers to run Detroit. He has said he wants to get a debt-adjustment plan approved by Rhodes by September, when the city council has the ability to regain control.
In June, Orr proposed dramatic cuts to unsecured creditors, including retirees and bondholders. That proposal, which was attacked by creditors after the city filed for bankruptcy, would have paid some unsecured creditors pennies on the dollar.
The talks overseen by Rosen have yielded about $470 million in pledges from the Detroit Institute of Arts and a group of civic foundations that support the museum. The money would be used to support the city’s underfunded pensions so long as the museum’s collection is protected from creditors.
Michigan Governor Rick Snyder has proposed that the state spend $350 million for the same purposes.
The plan will “take the temperature of creditors,” said Doug Bernstein, a bankruptcy lawyer at Plunkett Cooney PC in Bloomfield Hills, Michigan, who represents one of the foundations. “Expect more posturing. Everyone is trying to do the best job they can to get the most for their client.”
The case is In re City of Detroit, 13-bk-53846, U.S. Bankruptcy Court, Eastern District of Michigan (Detroit).
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