In order to shed much of its $18 billion debt, Detroit proposes giving unsecured bondholders, including holders of general-obligation debt, 20 cents on each dollar, according to a commentary in the latest edition of the Economist. Pensions will be cut, too. General pensioners will receive only 66 percent of their monthly pension (74 percent if they agree quickly). Pensioners in the police and fire departments have been offered 90 percent, but swift approval will net them 96 percent. The fact that some groups are doing far better than others sets the stage for some to approve the deal. In fact, if either class of pensioners rejects the deal, even a cramdown cannot force it through, according to the commentary. The restructuring plan rests on a bargain dreamed up by the state, foundations and the Detroit Institute of Arts (DIA). These groups will contribute $820m between them to the pension fund, but on the understanding that their cash is used to bolster the amount that pensioners, rather than other creditors, receive. At the same time the DIA would become an independent non-profit, a move intended to protect the art collection, much of which is now owned by the city. Bondholders are not impressed with this idea, either.
