A federal judge yesterday again delayed the start of the key phase of Detroit's historic bankruptcy case, pushing it to Aug. 29 from Aug. 21, Reuters reported yesterday. U.S. Bankruptcy Judge Steven Rhodes on Tuesday had raised the possibility that the confirmation trial, on Detroit's plan to adjust $18 billion of debt and exit the biggest-ever municipal bankruptcy, may be delayed to allow time for the city to incorporate a major settlement over $5.2 billion of water and sewer revenue bonds into the plan. The judge's new schedule calls for individual creditors who are representing themselves and who are objecting to the plan to present their evidence on Aug. 29. Starting Sept. 2, the hearing will move onto opening statements from Detroit and from attorneys representing major creditors opposing the plan, including Syncora Guarantee, a bond insurance company that has launched a fierce battle on many fronts of the bankruptcy.
Detroit’s debt-cutting plan can be challenged by nearby suburban counties when a trial over the feasibility of the proposal starts later this month, a judge ruled, increasing the opposition the city must overcome to end its $18 billion bankruptcy, Bloomberg News reported yesterday. Macomb, Wayne and Oakland counties oppose various aspects of the city’s plan, mainly because the proposal would take money out of the Detroit water system to help bolster an underfunded pension fund for city workers. The counties say the transfer may increase utility bills for their residents, who rely on the city for water service.
In related news, Detroit's largest union said on Monday that the city's historic bankruptcy proceedings have given the management of the water and sewer department opportunities to disrupt bargaining units and strip union members of job protections, Reuters reported yesterday. The American Federation of State, County and Municipal Employees Michigan Council 25 filed a motion on Monday to clarify or lift an automatic court stay on litigation against Detroit during the bankruptcy process. The state's employment commission, which settles labor disputes, has decided against holding hearings regarding the city until after the bankruptcy process is concluded. But AFSCME is pressing for the commission to hear two complaints that it filed against the Detroit Water and Sewerage Department sooner than that. The union contends that the stay applies only to those seeking monetary judgments. Read more.
One of Detroit’s chief remaining adversaries in bankruptcy said that the city’s exit strategy was tainted by what it called the biases of its chief mediator, the New York Times DealBook blog reported yesterday. Syncora Guarantee, a bond insurer, said in a court filing yesterday that instead of setting aside his sympathies, the chief mediator, Gerald E. Rosen, had said repeatedly that he believed he ought to get the best outcome possible for a single group of creditors — the city’s retirees. The chief mediator in Detroit’s case is also the chief judge of the U.S. District Court for the Eastern District of Michigan, where the historic bankruptcy is being handled. Syncora said that it believed that the chief mediator was acting out of good intentions. But, it said, such compassion must be carefully weighed against the requirement that similar creditors be treated in roughly the same way. Syncora is an unsecured creditor, as are Detroit’s retirees, but Syncora has been offered not only a worse deal than theirs but also one of the worst in the whole bankruptcy: Detroit wants to repudiate debt that Syncora insured, dealing it a total loss of hundreds of millions of dollars.
The city’s water department approved a plan to refinance almost $5.2 billion in debt, a move that could free up cash for Detroit’s restructuring and potentially speed an exit from bankruptcy court, the Detroit News reported today. The plan, approved by Detroit Water and Sewerage commissioners, would lower the utility’s interest rate, slash costs and potentially save customers across the region millions of dollars. The amount of savings for the city depends on how many bondholders accept the offer but the maximum savings would be significantly less than $500 million. The plan involves offering bondholders a chance to have the city buy back the bonds. By doing so, the utility would refinance up to $5.183 billion of debt. http://www.detroitnews.com/article/20140806/METRO01/308060114/Detroit-a…
In related news, the tab for the first nine months of Detroit's historic bankruptcy case is at least $51.19 million, according to a report on fees and expenses charged by the city's team of lawyers and consultants from July 2013 through March 2014, Reuters reported yesterday. There were no March fees and expenses listed for Jones Day, indicating that the law firm's eventual charges will exceed the report's $17.35 million. Meanwhile, the report only included fees and expenses from accountants Ernst & Young for January through March of this year, $3.69 million. The firm has revised and redacted monthly invoices for July through December 2013, and the fee examiner will file supplements on those numbers in coming days, according to the report. Additionally, the fee examiner keeping tabs on the bills of professionals working on Detroit's municipal bankruptcy questioned more than $67,000 worth of charges submitted by Dentons for media activities, such as reviewing newspaper coverage and compiling press reports, during the first three months of this year, the American Lawyer reported today. http://www.reuters.com/article/2014/08/06/usa-detroit-fees-idUSL2N0QC14…
Detroit Mayor Mike Duggan said that residents with unpaid water bills now have 21 more days to pay or set up a payment plan as the city reassesses its policy on how to deal with a $90 million backlog in unpaid bills, Reuters reported yesterday. The bankrupt city attracted unwanted international attention earlier this summer when it accelerated water shutoffs, turning off water to 7,210 accounts in June as it struggles to return to financial health. About 90,000 residential and business water accounts are still delinquent in the Detroit area, most of them in the city of 689,000 people, others in surrounding areas. The controversy made its way into the city's ongoing bankruptcy proceedings last month when Judge Steven Rhodes, who is presiding over the city's plan to exit chapter 9 bankruptcy, criticized the city, saying that the mass shutoffs were bringing "bad publicity for the city it doesn't need." In response, emergency manager Kevyn Orr handed control of Detroit's Water and Sewerage Department to Mayor Mike Duggan who promised a more streamlined, and fair, response to those with delinquent bills.
A federal court agreed on Friday to suspend seven cases seeking to overturn a lower court ruling that found Detroit was eligible for municipal bankruptcy, Reuters reported on Friday. The Sixth Circuit U.S. Court of Appeals' action followed motions filed on Thursday by attorneys for Detroit pension funds, unions and others requesting that the cases be suspended instead of dismissed until the city concludes a confirmation process for its bankruptcy exit plan. The appeals court had initially scheduled oral arguments for July 30 for the seven cases. But those proceedings were eventually canceled at the request of the city and the appealing parties due to actual or pending settlements. Instead of dismissals, the parties asked the court to hold off on ruling on any issues in the cases, adding however that the appeals process could be resumed if Detroit's current plan to adjust $18 billion of debt is changed or fails to be confirmed. Hon. Steven W. Rhodes has set an Aug. 21 start date for the confirmation hearing, which will determine whether the plan is fair and feasible.
A federal court was asked yesterday to suspend seven pending appeals over Detroit's eligibility for bankruptcy until the city concludes a confirmation process for its plan to adjust $18 billion of debt, Reuters reported yesterday. Attorneys for the city, Michigan, Detroit pension funds, unions and others that filed five of the appeals said that moving forward with the cases now would "significantly undermine" settlements and mediation and could delay the city's exit from the biggest municipal bankruptcy in U.S. history. But they also declined to dismiss their cases at this point. "Holding the appeals in abeyance also ensures that this court will not unnecessarily decide important state and federal constitutional issues," the attorneys said in a letter to the U.S. Court of Appeals for the Sixth Circuit. They added that the federal appeals court would retain jurisdiction after the plan confirmation process to review a December ruling by Bankruptcy Judge Steven Rhodes that found Detroit was broke and eligible for chapter 9 municipal bankruptcy.
The U.S. Court of Appeals for the Sixth Circuit yesterday had some criticism for a bond insurer’s bid to block Detroit from accessing casino revenue, with one judge calling the creditor’s efforts “fairly Draconian,” the Detroit News reported today. The panel was considering an appeal from Syncora Guarantee Inc., a holdout creditor in the city’s bankruptcy case that is fighting lower court rulings that $15 million a month in casino revenue belongs to bankrupt Detroit. Judge Julia Smith Gibbons gave no timeline for a decision but said the three-judge panel would consider the arguments “carefully.” The appeal by Syncora could determine whether Detroit can keep the casino cash — labeled by the city its best revenue stream — and spend it on public safety services and paying other creditors, including workers. The hour-long hearing in the Sixth Circuit Appeals Court ended with no resolution for Detroit or Syncora. Syncora was in court appealing orders from Detroit’s bankruptcy judge and a U.S. District Court judge that casino revenue belongs to the city while it is in bankruptcy court.
Bankruptcy Judge Steven Rhodes ruled yesterday that the start of a critical hearing on Detroit's plan to adjust $18 billion of debt and exit bankruptcy will be delayed by one week to Aug. 21, Reuters reported yesterday. Judge Rhodes rejected a request by city creditor Syncora Guarantee Inc. to postpone the hearing until Sept. 29, but said in his order that the bond insurer had demonstrated the need for a limited delay. Syncora, which has $400 million at stake in the case, mainly from insuring Detroit's debt, maintained that a 45-delay was justified because full documentation of Detroit's settlements with some creditors was lacking. Syncora said that its ability to prepare for the hearing was "significantly prejudiced" without the documents. The company also noted in a court filing on Monday that the city had just filed a revised plan on Friday containing "significant changes" that could have a materially adverse effect on Syncora's potential recovery in the case. The fifth revision of Detroit's plan removes any settlement over $1.4 billion on certificates of participation sold in 2005 and 2006 to boost funding for the city's two retirement systems. Syncora and Financial Guaranty Insurance Co. are on the hook for paying off the debt, which they insured, and the two have emerged as the major hold-outs in the case.
Detroit was insolvent when it filed its record $18 billion municipal bankruptcy last year, with a deficit of $130 million, according to a financial report released by the city, Bloomberg News reported yesterday. City auditor KPMG LLP verified the accuracy of the so-called comprehensive annual financial report (CAFR), which state officials received last week after a seven-month delay. Opponents of the bankruptcy attacked the decision to seek court protection from creditors, in part by arguing that auditors had not verified the city was insolvent at the time. “Although there is still much to be done to continue the improvement of the city of Detroit’s financial position and financial operations, the release of our 2013 CAFR represents an important milestone in our commitment to financial transparency and gives us a clean start to our reporting for fiscal year 2014,” Detroit Chief Financial Officer John Hill said.
