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Detroit could not afford to undertake a series of necessary improvements without a court-approved plan to shed a chunk of its debt, a city consultant testified on Friday at a court hearing, Reuters reported. Charles Moore, a senior managing director at restructuring firm Conway MacKenzie Inc., said that the six areas of Detroit's government that have been targeted for $1.7 billion of reinvestment initiatives running through June 30, 2023, were essential for the city to provide adequate levels of services to residents and businesses. "Without the plan, it's uncertain to me how the reinvestment initiatives can be funded," Moore testified during the fourth day of a hearing to determine whether the city's debt adjustment plan is fair and feasible. Detroit last year filed the largest municipal bankruptcy in U.S. history. It would shed about $7 billion of its $18 billion of debt and obligations under the plan and the city has reached settlements with most of its major creditors, including pension funds and unions.

Revenue projections in Detroit's debt adjustment plan will be hard to achieve, but restructuring initiatives will bring in new money and help make Detroit's plan feasible, Detroit's chief financial officer said yesterday in bankruptcy court, Reuters reported. John Hill, who was appointed the city's CFO last November, testified that the plan would eventually gain money for Detroit as the restructuring initiatives bring about changes, including higher collections of unpaid taxes. Hill was the first witness called by the city of Detroit as it seeks a federal bankruptcy judge's endorsement of its financial restructuring plan. If revenue comes in below projections after Detroit emerges from bankruptcy, that would lead to changes in the plan, which would require the approval of an oversight commission created for the city under Michigan law, according to Hill. The CFO referred to the city's plan to shed about $7 billion of its $18 billion of debt and other obligations as a road map for operating Detroit once it exits the biggest-ever U.S. municipal bankruptcy.

Bankruptcy Judge Steven Rhodes has ordered Detroit and civil rights attorneys into two weeks of confidential mediation over the city's practice of shutting off water to residents with unpaid bills, Reuters reported yesterday. Judge Rhodes will announce on Sept. 17 whether he will issue a temporary restraining order on Detroit's controversial attempt to reduce its $90 million backlog of unpaid water bills, according to an order signed on Tuesday and publicly released on Wednesday. Until then, the court's chief judge, Phillip Shefferly, will mediate negotiations with the bankrupt city and those who filed a class action to stop the city from cutting off water access to delinquent accounts.
http://www.reuters.com/article/2014/09/03/usa-detroit-water-idUSL1N0R40…

In related news, Detroit’s proposal to exit its record municipal bankruptcy by paying retirees more than bond investors will cause “serious mayhem,” an attorney for the plan’s opponents told a judge, Bloomberg News reported yesterday. Marc Kieselstein, an attorney for bond insurer Syncora Guarantee Inc., outlined the opponent’s case against the city’s proposal on the second day of a trial in Detroit federal court. The bond insurer says that the plan would illegally pay retired city workers much more on their claims than investors who hold more than $1.4 billion in pension-related debt. Bankruptcy Judge Steven Rhodes has set aside seven weeks to hear arguments and evidence concerning the plan before deciding whether it’s fair and feasible.
http://www.bloomberg.com/news/print/2014-09-03/detroit-bond-insurer-say…

Creditors can’t force Detroit to sell its art collection to cover their claims, the city said on the first day of a trial over its proposal to eliminate more than $7 billion in debt in the biggest U.S. municipal bankruptcy, Bloomberg News reported today. “Unsecured creditors have no rights” to be paid with art proceeds or any other city asset, Bruce Bennett, a lawyer for Detroit, said yesterday, attacking the main complaint by bond insurers who may be forced to make up investor losses imposed by the plan. Municipal debt investors should have known when they lent the city money that the only way to force Detroit to pay them was to sue and win a court order raising property taxes, said Bennett, a partner at the Jones Day law firm. That couldn’t be done without driving landowners away, he said. Bankruptcy Judge Steven Rhodes has set aside seven weeks to hear arguments and evidence for and against the plan before he decides whether it’s feasible and fair.
http://www.bloomberg.com/news/print/2014-09-02/detroit-bankruptcy-trial…

In related news, Bankruptcy Judge Steven Rhodes yesterday denied motions by two bond insurance companies that sought to block Detroit from presenting certain evidence at a key hearing on the city's plan to exit bankruptcy, Reuters reported. Judge Rhodes said that while he rejected the pretrial motions by Syncora Guarantee Inc. and Financial Guaranty Insurance Co., the companies were not precluded from bringing up their objections during the confirmation hearing on Detroit's debt adjustment plan. While Detroit has settled with most of its major creditors, including the city's two pension funds, Syncora and FGIC have emerged as its biggest hold-out creditors. Both guaranteed payments on $1.4 billion of pension debt the city is seeking to void and both are facing recoveries of just pennies on the dollar. Attorneys for the insurers argued that their clients would be harmed during the hearing if Detroit were allowed to bring up matters that the insurers were blocked from investigating.
http://www.reuters.com/article/2014/09/02/usa-detroit-bankruptcy-eviden…

Detroit’s plan to fix its finances with hundreds of millions of dollars in private donations comes years after the U.S. automotive capital got hooked on philanthropy to rebuild its blighted neighborhoods, revamp its riverfront and lure new businesses, Bloomberg News reported today. Since at least 2003, few big-city governments in the U.S. have leaned as heavily as Detroit on charity for community redevelopment, a habit that won’t change as it seeks to shed about $7.4 billion of debt and end court oversight of its finances. Bankruptcy Judge Steven Rhodes is to start a trial today in Detroit on whether to approve the city’s plan to exit its record $18 billion municipal bankruptcy with handouts from some of the richest foundations in the world. Under a deal with state lawmakers and wealthy donors, the foundations offered to shore up Detroit pension funds as long as the city didn’t use its art collection to pay debts. The city may call billionaire Dan Gilbert, the founder of Quicken Loans Inc., and Penske Corp. founder Roger Penske as witnesses to testify in support of the plan.

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.

Detroit won a commitment from Barclays Plc for $275 million in financing to fund the city’s exit from its landmark bankruptcy if a judge approves its debt-cutting plans at a trial slated to start next week, Bloomberg reported yesterday. Detroit is seeking court approval to eliminate more than $7 billion of its $18 billion in obligations to retired city workers, bondholders and other creditors. The money from Barclays would be used to pay off $120 million that Detroit borrowed to help fund its reorganization, pay some creditors and revitalize the city. The tax-exempt bonds to be issued as part of the financing will pay an interest rate equal to a municipal swap index plus 4.25 percent. The taxable bonds will be based on the Libor rate plus 4.75 percent. “We are very pleased to have secured this exit facility and are encouraged by the reception we received from the broader financial community,” Detroit Emergency Manager Kevyn Orr said. Syncora Guarantee Inc., which insures part of $1.4 billion in pension debt that the city seeks to cancel, plans to attack the so-called grand bargain between the city and a group of foundations that seek to keep Detroit’s art collection out of the hands of creditors. The case is In re City of Detroit, 13-bk-53846, U.S. Bankruptcy Court, Eastern District of Michigan (Detroit).

The U.S. bankruptcy court judge in the Detroit bankruptcy case yesterday removed allegations made by one of Detroit's remaining holdout creditors against mediators in the city's municipal bankruptcy case, Reuters reported today. Hon. Steven Rhodes chastised Syncora Guarantee Inc. for claiming in an Aug. 12 court filing that the mediators, Chief District Court Judge Gerald Rosen and attorney Eugene Driker, are biased. "The court finds that the allegations concerning the mediators ... are scandalous and defamatory," the ruling stated. It added that the bond insurance company's "highly personal attack" on Rosen was legally and factually unwarranted, unprofessional and unjust. James H.M. Sprayregen, an attorney with Kirkland & Ellis representing Syncora, said that they "respectfully disagree with Judge Rhodes." In its court filing, Syncora lashed out at the mediators, who brokered the so-called grand bargain, with allegations of improper conduct and conflicts of interest. A hearing to determine whether Detroit’s debt-adjustment plan is fair and feasible is scheduled to begin on Tuesday.

Detroit and its major hold-out creditors were ordered on Tuesday into mediation, just a week before a key federal court hearing is to start in the city's historic bankruptcy case, Reuters reported yesterday. The move followed a Monday hearing before Hon. Steven Rhodes on Detroit's objection to bond insurer Syncora Guarantee Inc.’s allegations of improper conduct and conflicts of interest in the case by court-appointed mediators. U.S. District Court Judge Gerald Rosen set a Wednesday and possibly Thursday mediation session over $1.4 billion of certificates of participation (COPs) that Detroit sold in 2005 and 2006 to pay its pension liability. The session will include bond insurers that guaranteed payment on the COPs — Syncora and Financial Guaranty Insurance Co.

As Detroit prepares to defend its plan next week to exit bankruptcy, city leaders have received an unusual offer: Why not mortgage all of the works in the Detroit Institute of Arts?, The New York Times reported yesterday. Art Capital, which makes loans backed by artwork, is willing to lend up to $3 billion, roughly 10 times the exit financing that Detroit is now contemplating, using the museum’s art as collateral. The city’s response: silence. Detroit already has plans for the art. Donors have promised hundreds of millions of dollars to put the collection under new ownership — safe from the bankruptcy creditors — and to help the city’s retirees. Detroit had a big hole in its pension fund when it declared bankruptcy last year, which made the retirees unsecured creditors, subject to painful cuts. By rolling up the art and pensions in a single deal, known as the grand bargain, Detroit hopes to keep its treasured collection intact while also getting more money to the retirees. But there is a potential problem: The grand bargain may be illegal.