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Detroit’s “divide-and-conquer” campaign to build support for its plan to shrink $18 billion in debt with a recent series of creditor accords may put pressure on holdouts to settle before a bankruptcy judge decides to push it through, lawyers following the case said, Bloomberg News reported yesterday. “‘Divide and conquer’ does seem to be the strategy that the city is pursuing, which is often a fear of creditors,” said George South, an attorney with DLA Piper LLP in New York, alluding to how the city has methodically reached agreements with individual creditor groups in its quest to resolve the biggest municipal bankruptcy in U.S. history by year’s end. Under a proposal announced April 15, Detroit’s emergency manager, Kevyn Orr, agreed to pay retired city police officers and firefighters their full monthly pensions. Hours later, the pension system for general employees, such as city hall clerks and street workers, said it, too, had settled with Orr. Those accords followed an agreement last week that would pay investors who hold unlimited general obligation bonds 74 percent of what they are owed. Holders of limited GO bonds would get only 15 percent under Orr’s debt-adjustment plan.

Bankruptcy Judge Steven Rhodes brought the idea of a regional water authority for Detroit back to life yesterday, ordering the city and three counties to mediate over the issue, Reuters reported yesterday. The order by Judge Rhodes comes after Detroit said in a court filing earlier this week that it had dropped the concept of a Great Lakes Water Authority from its plan to adjust $18 billion of debt and other obligations and exit from the biggest municipal bankruptcy in U.S. history. Detroit provides water and sewer services to millions of customers in its home county of Wayne and neighboring Oakland and Macomb counties. The proposal pushed by Detroit Emergency Manager Kevyn Orr to lease the city's water and sewer departments to a regional authority for a hefty annual fee and using that money for unrelated purposes drew objections by officials in Macomb and Oakland counties.
http://www.reuters.com/article/2014/04/17/usa-detroit-bankruptcy-idUSL2…

For further analysis and to hear a keynote speech by Detroit Emergency Manager Kevyn Orr, make sure to attend next week’s Annual Spring Meeting in Washington, D.C.! The speech will also be live-streamed on the ABI website.

The board of Detroit's General Retirement System yesterday approved economic terms of a settlement with the city that include cuts to pension benefits, putting in place another key component of Detroit's effort to exit bankruptcy by October, Reuters reported yesterday. The city also has reached a tentative pact with the city's other pension fund, the Detroit Police and Fire Retirement System, whose board is expected to vote later this week. Together, the two pension funds represent some 23,000 active members and retirees.

Detroit reached its first deal with a retired workers group yesterday over pension and health care benefits and was close to a deal with at least one of its pension funds, giving a major boost to the city's plan to exit bankruptcy in October, Reuters reported yesterday. Momentum for the city's plan to adjust its $18 billion debt burden was building after Detroit last week won court approval for a crucial settlement over interest rate swaps and reached an agreement with bond insurance companies over the treatment of voter-approved general obligation bonds. Under the deal with the Retired Detroit Police and Fire Fighters Association announced by bankruptcy court mediators yesterday, pensions for retired police and fire workers would not be decreased, but cost-of-living increases would be cut in half. A separate voluntary employee beneficiary association plan or VEBA will be established for retiree health care, according to a court statement.
http://www.reuters.com/article/2014/04/15/usa-detroit-bankruptcy-idUSL2…

In related news, the Obama administration and state officials are in discussions on a deal that would free up an additional $100 million to soften the blow to Detroit pensioners, the Detroit Free Press reported today. Sources close to the situation said that there have been talks about the federal government supporting a move by the state to give Detroit $100 million in federal money for blight remediation. That, in turn, would free up $100 million of the more than $500 million that Emergency Manager Kevyn Orr planned to spend for blight removal over the next 10 years. Orr could then use that money to reduce pension cuts. The federal funds would come from the Hardest Hit Fund, a $7.6-billion Obama administration effort established in 2010 to help the 18 states most hurt by the housing downturn.
http://www.freep.com/article/20140415/NEWS/304150147/

Make sure to attend next week’s 32nd Annual Spring Meeting in Washington, D.C., that will feature a keynote by Detroit Emergency Manager Kevyn Orr. For more information or to register, please click here: http://www.abiworld.org/ASM14/

Ongoing negotiations between the city of Detroit and its creditors in bankruptcy court delayed the scheduled rollout today of the city’s budget, the Detroit Free Press reported today. The City Council scheduled a public hearing yesterday for Emergency Manager Kevyn Orr to present a spending plan for the next two years. The budget was to be based on an updated version of the city’s restructuring plan, known as a plan of adjustment. The amended plan of adjustment, however, was not ready in time for this morning’s budget presentation, Detroit Chief Financial Officer John Hill told the council. The plan — a blueprint for bringing Detroit out of bankruptcy — is expected to be filed in U.S. Bankruptcy Court later today. The council, however, is not expected to receive a budget until May 9.

Detroit's plan to get out of bankruptcy cleared a major hurdle on Friday when a Bankruptcy Judge Steven Rhodes approved the cash-strapped city's third attempt at settling costly interest-rate swap agreements with two investment banks, Reuters reported on Friday. The city will pay $85 million to UBS AG and Bank of America unit Merrill Lynch Capital Services, much less than had been proposed on two previous attempts. The banks join a growing list of supporters for Detroit's plan to adjust $18 billion of debt and other obligations. The swaps were used to hedge interest-rate risk on some of the $1.45 billion of pension debt Detroit sold in 2005 and 2006. However, the city's bet that interest rates would rise proved wrong as rates fell along with the city's bond ratings, souring the deal. The previous settlements rejected by the judge had been much higher, at $230 million and $165 million.

Leaders of Wayne County, Mich., the home of Detroit, said that talks about the city's water and sewer department future have eroded into an "angry letter" state, and they asked to pull a federal mediator into the brawl, Dow Jones Daily Bankruptcy Review reported today. Wayne County leaders asked for federal judge Gerald Rosen, who has mediated other Detroit disputes, to take over negotiations between the city and its suburbs over a new regional authority for the city's water and sewer system. The groups can't even agree on a negotiation process and state of due diligence, county officials said in court documents filed Thursday.

Detroit’s three attempts to cancel interest-rate swaps for less than $100 million show how tough a fight it may face in July to reduce $18 billion in debt without cooperation from thousands of creditors in its record municipal bankruptcy, according to a Bloomberg News analysis today. “It’s going to be an even bigger battle,” attorney George South, a bankruptcy specialist, said. “Ultimately, that’s going to be the end of the day for these creditors. They are going to be fighting even harder.” Bankruptcy Judge Steven Rhodes is scheduled to tell the city today whether he will approve its proposed settlement with UBS AG and Bank of America Corp. to end interest-rate swaps that have cost taxpayers $200 million since 2009. The deal calls for the city to pay the banks $85 million in installments. Detroit has been trying for months to win court approval of a deal to end the swaps. An agreement to pay $230 million was put together in July, just days before the city’s bankruptcy was filed. Even after the payment was pared to $165 million, Judge Rhodes rejected it as too costly.

The Detroit Water and Sewerage Department is suing U.S. Bank claiming that it spent over $2.3 million on lawyers and financial advisers who responded to nervous investors in the wake of the city’s bankruptcy filing last summer, the Detroit Free Press reported today. U.S. Bank serves as trustee for the department’s bonds and received numerous calls after the filing. U.S. Bank asked for additional fees to cover the cost of responding, but water department officials noted that water and sewer bonds were being paid in full, according to a pleading filed in the bankruptcy case. Late last year, U.S. Bank and the water department held several negotiations on fees but never agreed. U.S. Bank used in-house lawyers to handle some of the work and hired Waller, Lansden, Dortch & Davis, LLP and Bodman, PLC to do the rest. The bank deducted the $2.3 million from fees that come in from the water department.

Bond insurer FGIC Corp. yesterday said that it has received proposals from "credible third parties" for acquiring or monetizing the Detroit Institute of Arts' collection that would generate $1 billion to $2 billion for the bankrupt city, Reuters reported yesterday. FGIC said estimated proceeds from the indications of interest would generate revenue "significantly higher than the currently proposed 'Grand Bargain'," referring to a proposal that would raise roughly $815 million from the state, private donors and several foundations to pay the city for the entire collection. The four proposals FGIC said it received range from an offer to buy a small percentage of the DIA collection for between $896 million to $1.473 billion to using the collection as security for a loan to the city of up to $2 billion, FGIC said.