An independent federal trustee helping to administer Detroit's historic bankruptcy case named a committee to represent interests of the unsecured creditors as the city prepares to submit a plan to the court to readjust its debt, Reuters reported yesterday. U.S. Trustee Daniel McDermott named five creditors to the committee: Detroit's two pension funds (which are its largest unsecured creditors), bond insurer Financial Guaranty Insurance Company, contract administrator Wilmington Trust Company and an individual creditor, Jessie Payne. The committee was created in order to ensure all unsecured creditors are ably represented. Bankruptcy Judge Steven Rhodes appointed a creditors’ committee of retired workers in August to represent the more than 20,000 city retirees throughout the bankruptcy proceedings. Detroit is paying the retiree committee's expenses.
Bankruptcy Judge Steven Rhodes on Friday refused to recommend the U.S. 6th Circuit Court of Appeals expedite an appeal of the city’s eligibility for chapter 9 bankruptcy relief, the Detroit News reported on Saturday. Judge Rhodes denied a request from city unions, pension funds and retiree groups that are fighting the city’s eligibility for bankruptcy relief and the judge’s ruling that pensions can be cut in bankruptcy court. “Rather, should the Court of Appeals authorize the direct appeals, the Court recommends that it consult with the mediator in the case, Chief District Judge Gerald Rosen, on whether expediting this ... appeal is in the best interest of the city, its creditors and its residents,” Rhodes wrote in a 30-page memo filed Friday. The judge’s decision could slow an appeal aimed at insulating retiree pensions from cuts in bankruptcy court and let the city continue its fast-track plan to restructure $18 billion in debt. The American Federation of State, County and Municipal Employees will ask the Sixth Circuit to expedite the appeal despite the judge’s recommendation, the union’s labor lawyer Michael Artz said Friday.
A key component in Detroit's plan to exit bankruptcy will either be renegotiated over the next week or possibly face litigation, an attorney for the city told a federal judge on Friday, Reuters reported. If the city cannot reach an agreement over costly interest-rate swap deals with banks and objecting parties, attorney Thomas Cullen of law firm Jones Day said, Detroit would retain its rights to litigate an end to the swaps. Bankruptcy Judge Steven Rhodes on Wednesday postponed the remainder of a three-day hearing on the swaps and a plan to finance their termination that started on Tuesday. He urged the parties to renegotiate the agreement. The original deal had Detroit securing a $350 million loan from Barclays PLC BARC.N, of which about $230 million would be used to end the expensive interest rate swap agreements with UBS AG and Bank of America Corp.'s Merrill Lynch Capital Services at a 25 percent discount. The remainder of the money would be earmarked to improve services in the cash-strapped city. The swaps deal drew objections from numerous city creditors, including its pension funds, which face debt recovery of just pennies on the dollar. Some objectors raised questions about the legality of the swaps themselves, which were used to hedge interest rate risk for a portion of $1.4 billion of pension debt Detroit sold in 2005 and 2006. The parties will continue discussions next week as U.S. District Judge Gerald Rosen, the chief mediator in the case, ordered mediation sessions on Monday and Tuesday, insisting that they occur even on Christmas Eve. If an agreement is reached, the city's attorneys said they will submit the revised deal to the court by Friday, December 27. Detroit Emergency Manager Kevyn Orr would then be deposed on December 31 by the parties that still object to the deal. The hearing to consider the agreement would recommence on January 3, with the possibility that it would continue to Saturday, January 4.
Detroit Mayor-elect Mike Duggan will run most of the city's day-to-day business and emergency manager Kevyn Orr will focus on the city's emergence from bankruptcy as part of a power-sharing arrangement the two men announced yesterday, Reuters reported. The deal marks a departure from the circumstance under outgoing Mayor Dave Bing, whose powers were greatly constrained after Governor Rick Snyder, a Republican, appointed Orr as Detroit's emergency manager in March. Michigan's emergency manager law gives Orr wide latitude to make decisions about city operations, and Bing felt that Orr gave him little room to act. Duggan, a former hospital executive, was elected in November in part because of his background as a turnaround specialist. Orr will be responsible for all city financial functions, the city's restructuring process through bankruptcy court and the Detroit Police Department. He also will run a new program to oversee administration of federal grants to the city. Duggan will manage the city's blight removal efforts and appoint all personnel in the city's executive branch who are not part of the civil service.
The value of the collection at the Detroit Institute of Arts falls within a range from $454 million up to $867 million, auction house Christie's said in its final report to the city's state-appointed emergency manager Kevyn Orr, Reuters reported yesterday. The appraisal only covered works owned by the city of Detroit, which account for only around 5 percent of the museum's 66,000 works. The appraisal is marginally above a preliminary estimate from Christie's, which gave a maximum value of $866 million to the works owned by the city.
The bankruptcy judge overseeing Detroit's bankruptcy case yesterday suspended a hearing on a $350 million post-petition financing to end interest-rate swaps, urging the city to renegotiate the deal, Reuters reported yesterday. The hearing was scheduled to continue through today, but U.S. Bankruptcy Court Judge Steven Rhodes asked Detroit instead to use the time scheduled for court to hash out details of an agreement. Rhodes ordered the parties back to court on Friday to discuss the status of today's negotiations, and that the hearing would be continued at a later date.
Detroit's path through bankruptcy began to take shape yesterday, with a second bond insurance firm ready to drop its objections to a controversial city financing plan, joining another bond insurer, bondholders and a committee of retired city workers in reaching agreements with the city, Reuters reported yesterday. But other objectors remain, including bond insurers Syncora Guarantee Inc. and Financial Guaranty Insurance Co., which are continuing an effort to derail an expensive interest-rate swaps deal at a discount. The two companies insured the swaps and $1.45 billion of pension debt associated with the swaps. Detroit needs the swaps deal in order to obtain a $350 million loan, some of which would be used to improve city services. A few holders of $375 million of Detroit's pension debt also said yesterday they were dropping their objection to the swaps deal after reaching an agreement with the city that would not prevent them from pursuing future claims.
Detroit, the biggest U.S. city to file for bankruptcy, is seeking permission to pay UBS AG and Bank of America Corp. $230 million to cancel payments on swaps that threaten the city’s revenue from casino taxes, Bloomberg News reported yesterday. A three-day trial began yesterday before Bankruptcy Judge Steven Rhodes on the city’s request to make the payment as part of a deal to cancel interest-rate swap contracts that have cost it about $4 million a month since July 2009. To pay for the settlement, the city wants Judge Rhodes to let it borrow $350 million. Buying out the swaps will keep the casino taxes, one of Detroit’s best sources of money, from going to the banks, Corinne Ball, a lawyer for the city, told Rhodes today. Creditors led by bond insurer Syncora Guarantee Inc. oppose the settlement, saying it costs too much. The city hasn’t proved it would lose if it sued to cancel the contracts instead of settling with the banks, Syncora said.
In bankruptcy and looking for cash, Detroit would like to lease its water utility to raise as much as $9 billion to fund basic services long term, but talks with neighboring suburban counties are stalled, Reuters reported today. County officials say that they are stuck over the price tag and estimates of repair costs, likely delaying plans by Detroit's emergency manager to deliver a financial restructuring plan early next month. Detroit Emergency Manager Kevyn Orr set a deadline of Dec. 20 to reach a water deal, which would help meet a self-imposed early January date for filing a plan to bring Detroit out of bankruptcy — well ahead of a March 1 requirement set by U.S. Bankruptcy Judge Steven Rhodes. A key sticking point is the estimate of what it would cost to repair or replace underground pipes and other Detroit Water and Sewerage Department infrastructure.
The Detroit Public Lighting Authority and Michigan Finance Authority on Friday said that they sold $60 million of bonds to jump start improvements to the city's ailing public lighting infrastructure, Reuters reported yesterday. The interim borrowing, which was privately placed with Citibank, will have a floating interest rate. Bankruptcy Judge Steven Rhodes on Friday approved the financing plan over the objection of some of the city's creditors. The bond sale is the initial phase of the lighting authority's financing plan, which calls for backing about $153 million of bonds with $12.5 million in Detroit's annual utility tax revenue. Those bonds, which will used in part to retire the interim debt, will be issued through the Michigan Finance Authority in 2014.
