%1

The political wrangling over Detroit’s bankruptcy restructuring plan intensified yesterday when the U.S. government, Oakland and Macomb counties (Mich.) filed official objections to the plan, the Detroit Free Press reported today. Separately, bond insurer Syncora said it plans to call Gov. Rick Snyder, state Attorney General Bill Schuette and former Detroit Mayor Dave Bing to testify during a summer trial about the case. The disputes over the future of the Detroit Institute of Arts and the Detroit Water and Sewerage Department (DWSD) served as the centerpiece for objections from several creditors. A group of major water and sewer bondholders also objected to the plan, adding a new legal obstacle to the city’s attempt to emerge from bankruptcy by mid-October. Oakland County accused Detroit emergency manager Kevyn Orr’s restructuring team of “putting the water and sewerage systems at risk” by considering transferring the assets to an outside authority in exchange for lease payments that could help reduce the city’s debt and provide revenue that could be reinvested in services. The U.S. government yesterday also said that it would oppose the city’s restructuring plan until its objections can be resolved. Attorneys for the U.S. objected on the grounds that the city owes $112 million to the Department of Housing and Urban Development, though the city says it owes $90 million. They also said that the city has failed to guarantee that it will follow Environmental Protection Agency guidelines during its restructuring. U.S. Bankruptcy Judge Steven Rhodes will conduct a confirmation trial starting July 24 to decide whether the plan is fair to creditors and feasible.

The bankrupt city of Stockton, Calif., will face off against a holdout creditor this week in a closely watched municipal bankruptcy case pitting the rights of impaired bondholders against retirees and other creditors, Reuters reported yesterday. At issue is whether the northern California city, which filed for chapter 9 bankruptcy protection almost two years ago, can effectively wipe out the claims of one creditor while treating others far more favorably and leaving city employee pensions untouched. The main objector to the city's plan of adjustment is the investment firm Franklin Templeton, whose Franklin High Yield Tax-Free Income Fund and Franklin California High Yield Municipal Fund would receive less than a penny on the dollar. During a four-day trial kicking off today, Bankruptcy Court Judge Christopher Klein is poised to determine whether Stockton's exit plan is feasible and fair. He'll also weigh the long-term burden of the city's pension obligations and oversee the dispute with Franklin.

The federal judge overseeing the bankruptcy of San Bernardino expressed frustration yesterday over the slow progress of talks between the city and its biggest creditor, the California Public Employees' Retirement System (CalPERS), Reuters reported yesterday. Bankruptcy Judge Meredith Jury said that she will probably set a deadline for the city to file a bankruptcy plan, known as a plan of adjustment, at the next hearing on June 19. San Bernardino, about 70 miles east of Los Angeles, filed for chapter 9 bankruptcy protection in August 2012 and does not appear close to presenting a plan of adjustment, which lays out how creditors will be treated. Stockton, another California city which declared bankruptcy about the same time as San Bernardino, is close to emerging from the process. In the San Bernardino case, the city and various creditors met again in court on Thursday. The city is in mediation talks with CalPERS, America's biggest public pension fund with assets of $277 billion. The city and CalPERS said that they needed more time to continue their private discussions, which are subject to a judicial gag order.

Legislation introduced yesterday in the Michigan House of Representatives would tie state money key to Detroit's bankruptcy exit plan to oversight and other conditions, Reuters reported today. Detroit's plan for dealing with $18 billion of debt and emerging from the biggest municipal bankruptcy in U.S. history depends on $816 million pledged to ease the impact of pension cuts on retired city workers and avoid a sale of city art work to raise money for creditors. The so-called grand bargain includes $350 million in state money that Michigan Governor Rick Snyder (R) has asked lawmakers to approve. Philanthropic foundations and the Detroit Institute of Arts pledged the rest of the money. Under the legislation, Michigan would make a single upfront payment of nearly $195 million, instead of $350 million spread over 20 years. The money would be taken out of the state's rainy day fund and paid back over 20 years with proceeds from Michigan's share of a national settlement with U.S. tobacco companies.

A special Michigan legislative committee will consider Governor Rick Snyder's proposal to allocate state funds as part of Detroit's plan to get out of bankruptcy court, Reuters reported yesterday. Michigan House Speaker Jase Bolger (R) said that the newly created bipartisan House Committee on Detroit's Recovery and Michigan's Future will take up a legislative package. Detroit's plan for dealing with $18 billion of debt and exiting the biggest municipal bankruptcy in U.S. history depends on money pledged to ease the impact on retired city workers and avoid a sale of city art work to raise money for creditors. The $816 million funding package includes $350 million in state money that Snyder has asked lawmakers to approve. Philanthropic foundations and the Detroit Institute of Arts pledged the rest of the money. Bankruptcy Judge Steven Rhodes on Monday approved a document that will be sent to the city's thousands of creditors for them to vote on the debt adjustment plan. The approved final version of the disclosure statement allows Michigan to make a single upfront payment of about $195 million instead of $350 million spread over 20 years.
http://www.reuters.com/article/2014/05/06/usa-detroit-bankruptcy-legisl…

In related news, the first six months of Detroit's historic bankruptcy case cost the city $36 million in fees and expenses for a team of lawyers and consultants, according to a quarterly report filed late Tuesday by a federal court-appointed fee examiner, Reuters reported yesterday. About $22 million of that amount represented the tab for professional services in the latest quarter covering October through December. Costs will likely mushroom for the next reporting period of January through March, which included the city's filing and subsequent revision of a plan to adjust $18 billion of debt and exit the biggest municipal bankruptcy in U.S. history that was filed on July 18.
http://www.reuters.com/article/2014/05/07/usa-detroit-bankruptcy-fees-i…

Bankruptcy Judge Steven Rhodes yesterday approved a key supporting document for Detroit's plan to adjust $18 billion of debt and exit the biggest municipal bankruptcy in U.S. history, Reuters reported today. Judge Rhodes ruled that the latest version of the disclosure statement Detroit filed with the court earlier on Monday contains "adequate information" for creditors. He also prohibited the city from making anything but "non-substantive or immaterial changes" to the document. The approval marks another hurdle cleared by the bankrupt city as it plans by May 12 to begin soliciting votes on the debt plan from its thousands of creditors.

The group representing the largest block of Detroit's retired workers on Friday agreed to accept the city's proposed cuts to their pension benefits, the latest in a string of deals the city has struck in an effort to resolve its historic bankruptcy, Reuters reported on Friday. The board of directors for the Detroit Retired City Employees Association, which represents 8,000 retired civilian workers, voted to support the city's plan of adjustment, according to the mediators appointed by the federal bankruptcy judge overseeing the case. Under the deal, contingent on full funding of the so-called Grand Bargain to aid retired city workers, non-uniformed city retirees would accept a 4.5 percent reduction in benefits and the elimination of cost-of-living-adjustment increases to their benefits. They would also have a voice in the voluntary employee beneficiary association that is planned for managing retiree health care. Previously, the group representing retired police and firefighters agreed to back the city's adjustment plan, as had the boards for the two independent pension systems for both groups. Under their deal, public safety retirees will not have their pensions reduced, though COLAs would be cut to 1 percent.

The California Public Employees Retirement System (CalPERS) said that a ruling by a judge in Detroit that federal bankruptcy law takes precedence over state law may threaten the soundness of public pension systems as a whole, Bloomberg News reported yesterday. CalPERS, the largest state-run pension system in the U.S., filed a friend-of-the-court brief yesterday in the federal appeals court in Cincinnati, which has been asked to consider a challenge to Detroit’s eligibility for bankruptcy protection. Bankruptcy Judge Steven Rhodes ruled last year that Detroit was entitled to creditor protection under chapter 9 of the U.S. Bankruptcy Code and could try to alter the terms of workers’ pensions. The decision, which would let a bankrupt municipality fail to meet its pension obligations in spite of state prohibitions, was “wrong on several levels,” CalPERS said.

General Motors Co. is asking those suing it over ignition-switch issues to voluntarily halt those lawsuits, according to documents filed ahead of a bankruptcy court hearing today on the issue, the Wall Street Journal reported today. The lawsuits, which seek damages over things such as lower car value and loss of use of a vehicle, should be stayed within 10 days, GM said in a letter yesterday to U.S. Bankruptcy Judge Robert Gerber, as the bankruptcy court decides whether GM can be held liable for these issues. If the parties suing refuse, they should be required to file documents with the bankruptcy court by May 25, and GM will respond by June 10.

Shamokin, Pa., tucked away in the coal country about 120 miles northwest of Philadelphia, has $800,000 of unpaid bills and can't get a loan from a bank, so the city council has agreed to seek entry to a state financial oversight program dating from 1987 that facilitates access to credit and permits the levying of certain taxes, Reuters reported today. Now, though, some lawmakers say the program is more like a trap than a benefit: few municipalities that get into it ever get out. Just seven of the 27 local governments to enter state oversight under the program, known as Act 47, have ever been released from it. As a result, legislators want to cap how long cities can stay under state oversight and, in the hardest cases, impose a municipal death penalty that amounts to disincorporation and a state takeover. The law was passed in a bid to help Pennsylvania cities battered by the decline of the American steel industry in the 1970s and '80s. The bill now moving through the legislature would codify the state's early-intervention options and improve financial reporting to allow the state to spot and help troubled municipalities earlier. State oversight under the amended Act 47 would be capped initially at five years, and the absolute limit, with extensions, would be eight.