Detroit’s newly hired emergency manager, Kevyn Orr, stood before reporters in March 2013 and issued a warning to city creditors, unions, vendors and others: “Don’t make me go to bankruptcy court. You won’t enjoy it,” the Associated Press reported. On July 18, 2013, the restructuring expert did just that, making Detroit the largest city in the U.S. to file for bankruptcy. What followed was months of negotiations, federal court hearings and an unlikely coming together of foundations to keep city-owned artwork from being sold to help pay off the debt. “Bankruptcy is a miserable process,” Orr said ahead of the 10th anniversary of the filing. “It puts everybody outside of their ordinary course, their common spaces.” Detroit was determined by a state-appointed review team to be in severe financial distress in 2012. Soon after, then-Michigan Gov. Rick Snyder hired Orr — an attorney with Jones Day — to take on the heavy lift of fixing a broken city. Massive population loss that began in the 1950s and a decadeslong downturn in the auto industry and other manufacturers had severely slashed Detroit’s tax base. Many neighborhoods were rife with vacant and burned out houses. Empty lots became dumping grounds for trash, used tires and even boats. Poverty, unemployment and crime rates were among the highest in the nation. The city’s budget deficit was north of $300 million. In the months before the bankruptcy, state-backed bond money helped the city meet payroll for its 10,000 employees. In the bankruptcy filing, Orr cited debt of $18 billion or more. The city now boasts balanced budgets, improved services and a blight reduction effort that has led to the demolition of more than 24,000 vacant houses. Orr considers his experience in Detroit as among his top accomplishments.
In related news, in the aftermath of Detroit's 2013-14 bankruptcy, two bond insurance companies became owners for a time of some high-profile real estate, including the old Joe Louis Arena site and a lease to half of the car tunnel to Canada, the Detroit Free Press reported. The insurers were major creditors in the bankruptcy, having insured a $1.4 billion debt deal nearly a decade earlier that was supposed to shore up the city's underfunded pension systems. (Spoiler: It didn't work as planned.) Those bond insurers' guarantees allowed Detroit to sell the debt with stellar AAA credit ratings, despite the city's shaky financial situation. The overall pension deal, which involved complex interest rate swaps contracts, ultimately helped to push Detroit into insolvency. One of the insurers, Financial Guaranty Insurance Co., insured more than $1 billion of the debt in the deal. The other, Syncora Guarantee, insured the remaining approximately $400 million. For the insurers, the bankruptcy had the potential to be devastating. There wasn't enough money left in Detroit to make them even close to whole. The two insurers were among the last holdout creditors, eventually settling in September and October 2014 by accepting various city-owned real estate and leases on city assets, along with cash from future city bonds sales. The article details what was in the settlement deals with the two insurers as well as the current status of the real estate assets that were involved. Read more.
