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Detroit yesterday struck a deal with a core group of creditors that could ease concerns about the treatment of certain bonds in its landmark bankruptcy case and pave the way for compromises with other creditors, Reuters reported yesterday. Under the deal, Detroit will no longer try to classify nearly $400 million of general obligation bonds as unsecured, which had been a chilling prospect for investors who have long viewed municipal bonds as among the market's safest investments. The settlement will also put about $100 million toward establishing an income stabilization fund to ensure city retirees, who are likely to see their benefits reduced in the bankruptcy, stay out of poverty. Bankruptcy court mediators said that the settlement reinstates $287.5 million of the $388 million in claims on Detroit's unlimited tax general obligation bonds insured by National Public Finance Guarantee Corp., a unit of MBIA Inc.; Assured Guaranty Municipal Corp. and Ambac Assurance Corp.

Creditor objections flowed into a U.S. bankruptcy court on Monday, claiming a document supporting Detroit's plan to deal with $18 billion of debt and other obligations is missing crucial details, Reuters reported yesterday. Labor unions, bond insurers, bondholders, city retiree groups and Michigan county governments met Monday's deadline set by the court and filed laundry lists of objections to the city's disclosure statement. Detroit's biggest union, the American Federation of State, County and Municipal Employees Council 25, whose members face cuts in retirement benefits, wrote that "the city has failed to provide large amounts of critical information." The union also said the city was remiss in not addressing any fallout from pension cuts. "The city must disclose the risk that its financial projections do not properly take into account the added poverty rolls it may need to support, and further, the effect of such pension cuts on the morale of the AFSCME employees, the likely increase in crime and decaying social atmosphere, and all that comes with the proposed pension cuts," the union's filing said. Bankruptcy Judge Steven Rhodes has set an April 14 deadline for Detroit to respond to the objections and an April 17 hearing on any unresolved objections to the revised disclosure statement the city filed with the court on March 31.

Leaders of the bankrupt city of Detroit say that several bond investors and an insurer don't have the right to step into a fight that could make $1.4 billion of borrowed money — including their investments — disappear from the city's debt, Dow Jones Daily Bankruptcy Review reported today. In court papers, the city's bankruptcy lawyers argued that both Financial Guaranty Insurance Co. and investors who extended a type of bond debt to the city gave up the right to sue over the 2005 borrowing deal when they signed their contracts.

Bankruptcy Judge Steven Rhodes said yesterday that he will rule April 11 on a proposal to end costly interest-rate swap agreements, a key issue as the city seeks to exit bankruptcy later this year, Reuters reported yesterday. Judge Rhodes made the announcement after a day-long hearing that included testimony by Detroit Emergency Manager Kevyn Orr, who defended a proposed $85 million payment to UBS AG and Bank of America unit Merrill Lynch Capital Services to terminate soured swaps that were used to hedge interest rate risk on Detroit's pension debt. The money owed to the investment banks helped drive Detroit to file the biggest municipal bankruptcy in U.S. history in July 2013. A plan to end the swaps at a discount has been a key facet of Detroit's case since then.
http://www.reuters.com/article/2014/04/03/usa-detroit-bankruptcy-idUSL1…

In related news, Detroit’s Emergency Manager Kevyn Orr said that the city may be able to conclude its record $18 billion bankruptcy in October, less than 18 months after seeking court protection from creditors, Bloomberg News reported yesterday. Orr told U.S. Bankruptcy Judge Steven Rhodes yesterday that Detroit was “hoping” to exit by Oct. 15. Michigan’s biggest city filed for bankruptcy in July after decades of decline, saying it couldn’t pay creditors while also providing essential services to its 700,000 residents.
http://www.businessweek.com/news/2014-04-03/detroit-manager-says-city-m…

Bankruptcy Judge Steven Rhodes yesterday approved Detroit's plan to borrow $120 million from Barclays PLC to improve services in the cash-strapped city, Reuters reported yesterday. Judge Rhodes overruled objections by city creditors who took issue with the timing and structure of the loan. Detroit has said that it plans to use some of the loan proceeds on public safety improvements. The loan deal emerged early last month after a larger loan was rejected in part by the judge in January. The previous loan, backed largely by city casino tax revenue, included $165 million that Detroit wanted to use to pay two investment banks to end soured interest rate swap agreements that contributed to the city's filing of the biggest municipal bankruptcy in U.S. history in July. Those swaps were used to hedge interest rate risk on some Detroit pension debt. In January, Rhodes ruled that the $165 million price tag was too high for the broke city.

Detroit yesterday missed a second payment on its outstanding general obligation bonds as the city continues to face opposition from major creditors to its plan to restructure $18 billion of debt and exit municipal bankruptcy, Reuters reported yesterday. Bill Nowling, a spokesman for Detroit Emergency Manager Kevyn Orr, said that the city does not intend to make the $47.6 million annual principal and semi-annual interest payment on the bonds that was due yesterday. The city has already defaulted on a $9.4 million interest payment on Oct. 1. That action led credit rating agencies to drop the rating on more than $600 million of unlimited and limited tax GO bonds to D, the bottom of the rating scale.

Don't miss the keynote by Detroit Emergency Manager Kevyn Orr at ABI's Annual Spring Meeting in Washington, D.C. later this month. For more information or to register, please visit http://www.abiworld.org/asm14.

Some of Detroit's retirees and bondholders would fare a little worse under a revised plan the city filed in bankruptcy court yesterday to deal with its $18 billion of debt and other obligations, Reuters reported yesterday. Investors who bought Detroit bonds that the city has deemed to be unsecured would stand to recover only 15 percent of their investment, down from 20 percent in the initial plan Detroit filed in February. At the same time, proposed cuts to pensions of some retired city workers grew in the revised plan. For police and fire retirees the potential cuts would rise to 6 percent from 4 percent in the previous plan in the case of a timely settlement, and to 14 percent from 10 percent if the plan is rejected and money pledged by foundations and the state of Michigan for retirees is not forthcoming. The range of cuts to general city worker retirees remained the same at 26 percent with a settlement and 34 percent without.

One of Detroit’s bankruptcy creditors is sending an exhaustive subpoena to the Detroit Institute of Arts, seeking all documents related to the museum’s art collection and records detailing its financial performance in a move that amplifies the tension over the DIA’s future, the Detroit Free Press reported on Saturday. Bond insurer Syncora is seeking a broad swath of documents, including century-old records detailing the museum’s transfer to city ownership and documents specifying donor restrictions on all of the museum’s 66,000 works. Syncora and another bond insurer, Financial Guaranty Insurance Co., are waging a fight to force the City of Detroit to take steps to turn the DIA into cash to pay off creditors.

Preventing Detroit from having to make a return trip through chapter 9 will be a major priority of Judge Steven Rhodes and emergency manager Kevyn Orr as they push Detroit’s bankruptcy toward conclusion this summer, according to a commentary in today’s Detroit Free Press. Whatever they propose about Detroit’s future governance — how much control to return to elected leaders, and how quickly — will surely spark contentious debate, according to the commentary. Mayor Mike Duggan and Detroit City Council members will want authority, right away, to do what they were elected to do. Bankers and municipal bond issuers, though, will want strong outside oversight in place to prevent a return to bad habits and another fiscal debacle. “Every time I talk to creditors,” says Ken Buckfire, of the Miller Buckfire firm leading the strategic overhaul of Detroit finances, “they ask about what happens after we’re gone, to prevent this from happening again. Whatever the Detroit oversight body is called after bankruptcy and Orr’s exit, according to the commentary, it will likely have more power than the Financial Advisory Board formed in April 2012. That board was to provide analysis and advice for a stability agreement between Detroit and the State of Michigan that predated Orr’s arrival as EM.

Detroit dropped a key requirement in its latest version of an agreement on costly interest rate swaps with two investment banks, Reuters reported yesterday. Under the agreement, UBS AG and Merrill Lynch Capital Services, a unit of Bank of America Corp. would no longer have to support the financially hobbled city's plan to restructure its debts. Other creditors had said that they could be subject to a "cram down" if the banks officially approved the plan. Under chapter 9, once a city wins agreement from a single class of creditors whose interests are impaired by bankruptcy it can then impose settlement terms on other classes of creditors. In the agreement, though, the banks state they will not object to a debt-adjustment plan. On Monday, Detroit will submit to the bankruptcy court an amended adjustment plan, along with a revised disclosure statement that responds to various "informal requests for the inclusion of additional information," the city said in a filing yesterday. Bankruptcy Court Judge Steven Rhodes has scheduled a hearing for April 4 on the plan and its treatment of retirees.