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A federal appeals panel that was asked to hear a challenge to Detroit's eligibility for bankruptcy protection said that it will confer with the federal district judge overseeing mediation with city creditors before deciding whether to take the case right away, Bloomberg News reported yesterday. Bankruptcy Judge Steven Rhodes ruled in December that Detroit is eligible for chapter 9 protection and that the Michigan constitution gives municipal pensions the status of contracts that can be altered in bankruptcy. The city's two pension funds filed for a direct appeal to the U.S. Court of Appeals in Cincinnati, bypassing the federal district court. Detroit opposes an immediate appeal, as does the state solicitor general. The city has argued that allowing an appeal will delay progress in mediation. The Michigan attorney general sided with the pension plans, while Rhodes recommended against an appeal at this time. The appeals court notified the parties on Feb. 7 that a three-judge panel will confer with U.S. District Judge Gerald Rosen, who serves as the lead mediator between Detroit and its creditors. The panel said that it will confer with Rosen about the status and time frame for mediation.

Detroit's emergency manager said yesterday that he expects to push back the date he will file city's debt-cutting plan in bankruptcy court, the Wall Street Journal reported today. "The City had hoped to file its plan of adjustment and disclosure statement with U.S. Bankruptcy Court at the end of this week, but that time frame is likely to be moved back until next week to accommodate ongoing negotiations and mediation meetings," Emergency Manager Kevyn Orr said yesterday. "The City nonetheless remains prepared to file its plan on or before the March 1 deadline established by U.S. Bankruptcy Judge Steven Rhodes.” This week's negotiations could alter the balance of payments to 27 creditor classes identified in the plan. Of those, 16 stand to receive less than what they are owed by the city. Last month, Mr. Orr sent creditors a draft of the proposed debt-reorganization plan. While the creditors can object to, and will have a vote on, the so-called plan of adjustment on what the city owes to them, Judge Steven Rhodes will have the final say to approve or deny the plan. To date, Detroit and its creditors haven't commented publicly on the draft plan that addresses the city's long-term obligations previously estimated at $18 billion.

Insurance companies have joined the list of parties that want to pry open the records of secretive bankruptcy trusts that plaintiff lawyers set up to pay asbestos-related claims, Forbes.com reported on Friday. Humana, Aetna, Blue Cross and Blue Shield, and hospital networks operated by Johns Hopkins and Tufts have filed a complaint in state court in Philadelphia demanding claims records from the H.K. Porter Asbestos Trust. The insurers say they need the names of plaintiffs who have recovered money from the trust so they can be reimbursed for medical expenses they paid to cover the same asbestos-related illnesses. In a similar so-called subrogation action, insurers are preparing to sue Pfizer in federal court in New York to recover some of the $1.2 billion the pharmaceutical maker agreed to pay to settle lawsuits linked to its Quigley unit, which filed for bankruptcy in 2004. In that case, United, Humana and other insurers say the secrecy of the Pfizer settlement with some 230,000 plaintiffs prevents them from demanding reimbursement for medical costs already incurred.

Long powered by the Big Three automakers, the bankrupt Motor City today is relying on casino cash, the Wall Street Journal reported today. Taxes drawn from Detroit's three casinos have been the subject of months of tense negotiations in the city's municipal bankruptcy case. Detroit pledged the casino revenue as collateral in a 2009 deal with two of the world's biggest banks that was aimed at securing lower interest rates. That bet went sour, contributing to the city's financial woes. Now, two potential settlements with the banks have been rejected by Bankruptcy Judge Steven Rhodes, who is presiding over Detroit’s bankruptcy case, putting the casino revenue at risk. Casinos are considered essential to the city's revitalization plan because cash-poor Detroit draws more wagering-tax revenue from its three gambling halls and attached hotels, opened a decade ago, than from the taxable property value of assembly lines at Ford Motor Co., Chrysler Group LLC and General Motors Co. But like the auto industry before it, local casinos could soon contribute less to the city's coffers as competition heats up from newer casinos within driving distance. Last year, taxable revenue from casinos fell 4.7 percent to $1.35 billion, the biggest year-to-year drop ever, according to the Michigan Gaming Control Board.

A federal judge has reopened a lawsuit challenging the constitutionality of Michigan’s emergency manager law, an attorney for plaintiffs in the case said Friday, the Detroit News reported on Saturday. John Philo, legal director for the Sugar Law Center, said U.S. District Judge George Caram Steeh ruled Thursday that the suit may proceed. The decision comes after Bankruptcy Judge Steven Rhodes, who is presiding over Detroit’s historic bankruptcy case, agreed three separate times that a stay on the suit should be lifted. Judge Rhodes has required that the lawsuit be amended to drop a request for the removal of Detroit’s Emergency Manager Kevyn Orr. Steeh’s ruling means the case taking on the legality of the law statewide will now advance in Detroit’s federal court while a new appeal by the state is pending, Philo said.

Detroit won’t take legal action for now against Bank of America Corp. and UBS AG over a costly swaps deal, even after canceling a forbearance agreement it reached with the banks in July, Bloomberg News reported yesterday. While they continue trying to negotiate an end to the swaps, which cost taxpayers about $4 million a month, the city and the banks will refrain from taking court action against each other, according to Bill Nowling, a spokesman for Detroit’s emergency financial manager, Kevyn Orr. The forbearance agreement, reached days before Detroit filed the biggest U.S. municipal bankruptcy, was a kind of truce. Detroit agreed not to sue to cancel the swaps and the banks agreed not to declare the city in default of the contracts, which would have allowed them to try to seize casino tax revenue. The city and the banks have been trying to reach a settlement that Bankruptcy Judge Steven Rhodes will accept. Last month, he rejected a proposal to buy out the swaps for $165 million, saying it was too costly.

In what would be a major step toward resolving Detroit's historic bankruptcy case, Michigan Governor Rick Snyder yesterday unveiled plans to use state funds to help pay for Detroit worker pensions in his proposed $52.1 billion state budget, Reuters reported yesterday. The insertion of the Detroit pension money is Snyder's first official move toward previously announced plans to tap $17.5 million a year over 20 years from the state's share of a 1998 multi-state settlement with U.S. tobacco companies. Last month, the Republican governor proposed adding $350 million in state funds to money pledged by U.S. foundations to help fund Detroit's retired worker pensions and keep city-owned art work out of the bankruptcy case. Pension funds are Detroit's biggest unsecured creditors, and Kevyn Orr, the state-appointed emergency manager running Detroit, has pegged the unfunded pension liability at $3.5 billion. Pension cuts are among options Orr has said he is considering in his effort to restructure Detroit's finances.

A report filed yesterday by a court-appointed fee examiner showed that Detroit's price tag for lawyers, consultants and other professionals hit $13.7 million in the first 75 days of its historic bankruptcy, Reuters reported today. The tab for professional services covers the period beginning with Detroit's July 18 bankruptcy filing until the end of September and likely has mushroomed since then, as lawyers spent significant time before Bankruptcy Judge Steven Rhodes, even throughout the holiday season. The fees and expenses Detroit incurred through the end of September were "substantial" but also unavoidable given circumstances of the bankruptcy, wrote Robert M. Fishman, who was appointed fee examiner in August, in his first quarterly report to the U.S. bankruptcy court.

The city of Detroit wants a Bankruptcy Judge Steven Rhodes to disband a committee appointed to represent unsecured creditors, saying that it could disrupt mediation talks aimed at reaching a deal to help the Motor City speed an exit from its record-setting chapter 9 bankruptcy filing, the Detroit News reported today. Judge Rhodes has set a Feb. 19 hearing on the motion, which was filed on Friday. Federal mediators have been working for months to reach deals to help speed the city’s plan of adjustment. The mediation team has been working to raise pledges of $370 million from foundations, $350 million from the state and $100 million by the Detroit Institute of Arts in a bid to defray pension losses and protect the city-owned art from sale in bankruptcy. “The city believes that the appointment of the creditors’ committee comprised largely of parties already participating in mediation will not advance, and may well disrupt, the mediation,” the city said in its filing.

Detroit’s proposal to restructure its $18 billion of debt by paying pensioners at more than twice the rate of some municipal bondholders threatens to increase borrowing costs for localities throughout Michigan, Bloomberg News reported on Saturday. The draft plan given to creditors last week by Emergency Manager Kevyn Orr offers different recovery rates for classes of unsecured creditors. Pensions would get 45 to 50 cents on the dollar, though retiree health care liabilities would recoup just 13 cents, according to the plan. By comparison, those who loaned $1.4 billion to shore up the two pension funds would receive 20 percent of their claims. Holders of $369 million in unlimited-tax general obligations would recover 46 percent. The plan assumes an infusion of nearly $800 million for the two pension systems from equal contributions by the state and private foundations. To protect the city’s collection of art masterworks, foundations and the Detroit Institute of Arts have pledged $470 million. Snyder proposed $350 million that the legislature must approve.