Penske Says Detroit Like GM to Be Cleansed by BankruptcySteven Church
Detroit can benefit from a trip through bankruptcy, just as General Motors Co. used court protection to turn itself around, billionaire Roger Penske told the judge weighing whether to approve the city’s $7 billion debt-cutting proposal.
“I realize it’s a cleansing effect,” Penske told U.S. Bankruptcy Judge Steven Rhodes in Detroit today.
Penske, 77, founder and chairman of the Detroit-based Penske Corp., which operates truck and car leasing businesses, is one of two area billionaires who are backing the city’s plan. Dan Gilbert, 52, chairman and founder of Quicken Loans Inc., testified two days ago.
Penske led a successful campaign to bring the National Football League’s Super Bowl to Detroit in 2006 and also brought back the Detroit Grand Prix, a race that puts $45 million into the local economy.
He started his business in 1965 with a Chevrolet dealership in Philadelphia after retiring from racing. His connection to the auto industry has made him an influential booster in Detroit.
Penske, GM, Ford Motor Co. and Chrysler Group LLC said last year that they would donate $8 million to provide 23 ambulances and 100 new patrol cars to Detroit’s fire and police departments.
Detroit is trying to persuade Rhodes to approve the debt-cutting proposal over the objections of the last major creditor to oppose the plan, bond-insurer Financial Guaranty Insurance Co.
After Penske testified, Rhodes questioned Detroit’s emergency manager, Kevyn Orr, about how much power a proposed financial oversight board would have.
Rhodes wanted to know whether Detroit’s mayor and city council president could influence how the nine-person board operated. Rhodes also asked whether a new chief financial officer would be independent from city officials, as in other cities that have oversight boards.
Orr said he wasn’t concerned about undue influence by city officials on the board. The CFO could be hired and fired by the board and would report to the mayor, he said.
For the second time in two days, Orr defended an agreement with the state of Michigan, private foundations and the Detroit Institute of Arts to protect city-owned art from liquidation in exchange for money to prop up pensions. That arrangement, opposed by FGIC, is worth more than $800 million over about 20 years.
Following Orr, investment banker James Doak told Rhodes that city-owned land wasn’t worth enough to justify putting much effort into selling it.
“If we had a square block in New York, then we would have taken a different approach,” said Doak, of Miller Buckfire & Co. “All we had was chiefly abandoned land in Detroit.”
Doak also defended the city’s proposal to settle its fight with Syncora Guarantee Inc. The city agreed to renew a lease for a Syncora affiliate to operate a tunnel into Canada, and to give the bond insurer the option to buy land around the tunnel and a parking garage downtown. Syncora, in return, agreed to drop its objections to the debt-adjustment plan.
Edward R. McCarthy, an attorney for New York-based FGIC, questioned the Syncora deal, saying Doak didn’t do any specific study to find out whether the tunnel contract or the land might attract bids from other investors.
Doak said he couldn’t talk about work he might have done as part of confidential mediation with New York-based Syncora that led to the agreement. Doak conceded that he hadn’t done any study outside of the mediation process.
The case is In re City of Detroit, 13-bk-53846, U.S. Bankruptcy Court, Eastern District of Michigan (Detroit).