As Bankruptcy Judge Steven Rhodes begins hearings today to determine whether Detroit's readjustment plan fulfills the legal and fiscal requirements to exit Chapter 9 bankruptcy, some creditors are making out far better than others with similar legal standing, according to a Wall Street Journal editorial today. The city has offered general-obligation bondholders 34 to 74 cents on the dollar. Voluntary Employee Beneficiary Associations will administer reduced health benefits, and pensions will be modestly trimmed under a deal negotiated by the court's mediator. The plan patently favors workers and retirees over bond insurers Syncora and Financial Guaranty Insurance Company that have similar legal standing, according to the editorial. The two companies insured $1.4 billion in certificates of participation (COPs), a common form of government financing, that the city issued last decade to shore up its pension funds. According to the city's calculations, insurers stand to recover at most 10 cents on the dollar, which is 30 to 50 cents less than the pension funds.
