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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.

San Bernardino’s firefighters are “stonewalling” negotiations in the California city’s bankruptcy, said a federal judge, who refused to immediately give their union permission to sue in state court, Bloomberg News reported yesterday. San Bernardino has either cut deals with, or is in talks with, almost all of its major creditors. Since the city filed for bankruptcy in 2012, the firefighters have fought over a variety of technical questions, including what rules should govern any contract-related negotiations. “I see the stonewalling coming from the firefighters,” Bankruptcy Judge Meredith Jury said at a hearing yesterday. After filing for bankruptcy, the city had been mired in conflict with unions and its biggest creditor, the California Public Employees’ Retirement System, which it owes about $143 million, according to court papers. In June, San Bernardino’s lawyers told Jury that the city had a final deal with CalPERS and was in talks with the police union. San Bernardino has said that if the firefighters reject its final offer, the city will ask Jury to cancel the current union contract. So far, however, it has been unable to meet with the firefighters to present the final offer.

One of the biggest hold-out creditors in Detroit's bankruptcy will argue next month for a dismissal of the historic case to bring about more equitable treatment of all the city's creditors, Reuters reported yesterday. Detroit's plan to adjust $18 billion of debt has been approved by most, but not all, of the city's unsecured creditors, bringing to center stage the possibility of a cramdown, where the plan could be imposed on objecting creditors if U.S. Bankruptcy Judge Steven Rhodes determines it is fair and feasible. Restructuring experts for one objector, Financial Guaranty Insurance Company, plan to testify at a critical confirmation hearing beginning Aug. 14 against the entire case, the cram down and the 'grand bargain' intended to ease pension cuts on city retirees and prevent selling Detroit's art collection.

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.

Ambac Assurance Corp. said that its final settlement in Detroit's bankruptcy case over the treatment of limited-tax general obligation bonds that it insured for the city would result in a 34 percent recovery, plus another possible 19 percent from a litigation reserve, Reuters reported on Friday. The reserve would contain funds related to litigation over Detroit's pension debt, according to Ambac. The reserve is based on certain notes the city will use for recoveries for some of its unsecured creditors. "Ambac Assurance's share of the B notes may equate to a recovery of an additional 19 percent of its allowed claim with respect to the LTGO bonds," the bond insurer said in a statement. "If the city loses the litigation, Ambac Assurance will not get any further recovery. If the litigation is settled, Ambac Assurance may get a partial incremental recovery," it added. Detroit has asked the bankruptcy court to invalidate $1.45 billion of pension certificates of participation the city sold in 2005 and 2006.

Detroit released a revised debt adjustment plan on Friday that details the role of a post-bankruptcy monitor and sets up a reserve fund to possibly enhance recoveries for certain creditors, Reuters reported on Friday. The fifth revision of the plan filed in bankruptcy court creates a litigation trust related to Detroit's lawsuit seeking to void $1.45 billion of pension certificates of participation (COPs) sold in 2005 and 2006. Should Detroit prevail in the suit, money the city would have had to use to pay off the debt would instead be divvied up, with 65 percent going to the voluntary employees' beneficiary associations set up for city retiree healthcare costs and 20 percent going to limited-tax general obligation bondholders. A class of miscellaneous claims would receive the remaining 15 percent. Bankruptcy Judge Steven Rhodes, who has yet to take up substantive issues in the COPs lawsuit, plans to start a confirmation hearing on Detroit's plan Aug. 14.

Public pensions from California to Ohio are backing away from hedge funds because of concerns about high fees and lackluster returns, The Wall Street Journal reported yesterday. Those having second thoughts include officials at the largest public pension fund in the U.S., the California Public Employees' Retirement System (CalPERS). Its hedge fund investments are expected to drop this year by 40 percent, to $3 billion, amid a review of that part of the portfolio. A spokesman said that the fund is taking more of a "back-to-basics" approach with its holdings. The retreat comes after many pension funds poured money into hedge funds in recent years in the hope of making up huge shortfalls.

Detroit’s recent history is littered with many false claims of an impending turnaround, and successful emergence from bankruptcy is no guarantee of revitalization, according to commentary today in The Times Herald by James Hohman, assistant director of fiscal policy at the Mackinac Center. To ensure an authentic recovery, state government must remain actively involved for the foreseeable future. By reducing its debt in bankruptcy, Detroit will free up funds to reinvest in current operations. Without bankruptcy, legacy costs threaten to take up two-thirds of the city’s revenue in coming years, he said. This extra money will help Detroit improve management. According to the state’s report certifying a financial emergency, the city’s managers were overspending budgets for years without the authority to do so, and internal reporting was in shambles. Emergency Manager Kevyn Orr’s debt-readjustment plan assumes that the population will drop to 625,000 by 2020, a loss of another 60,000 people, which Hohman thinks will weaken an already dangerously soft tax base. It is not the state’s job to manage contracts or administer information technology for Detroit, he said, adding that the state needs to monitor the city.

Momentum is building toward a deal that would make painful losses inevitable for investors holding about $20 billion in bonds issued by Puerto Rico's highway, water and electricity authorities, even as some big U.S. mutual funds launch a legal battle to squelch a new law that authorizes a restructuring, Reuters reported today. The Puerto Rican government and most of its creditors have hired U.S.-based bankruptcy experts to advise them through the Caribbean island’s efforts to solve its debt problem, and the resolution figures look a lot like a U.S.-style bankruptcy.

Financial Guaranty Insurance Co. (FGIC) and Syncora said on Tuesday that they plan to fight Detroit in federal court on the grounds that the city is giving a much better deal to city pensioners and is unfairly discriminating against bondholders from whom the city has borrowed heavily, The Christian Science Monitor reported yesterday. Their complaint comes a day after two pension groups, made up of retired police, firefighters and other public workers, voted to accept slightly reduced pensions under the city's plan to restructure its crippling debt. The two insurers say that Detroit is legally bound to a $1.4 billion debt deal established in 2005. Detroit Emergency Manager Kevyn Orr has argued that the debt deal — brokered by former Mayor Kwame Kilpatrick, now in federal prison on a corruption conviction — is illegal. Orr is set to bring the debt restructuring plan before Hon. Steven W. Rhodes starting Aug. 14. It is possible that proceedings will move forward even without bondholders being in full agreement, said University of Michigan Prof. John A.E. Pottow. If there is no settlement that eliminates the need for a trial, Judge Rhodes can force cuts to creditors, or can determine that the city and its creditors need to reach a new deal.