Standard & Poor's Ratings Services said that despite significant budget pressures, Chicago will not head down the same path that led Detroit into bankruptcy, Reuters reported yesterday. "We believe that Chicago's growing economy and taxing flexibility provide it with the resources to avoid a fate similar to Detroit's should it capitalize on this flexibility and remain on course," the S&P concluded. S&P gave Detroit its lowest credit rating of D after the city defaulted on its general obligation bonds in October. Chicago's bond rating remains solidly investment grade at A-plus, albeit with a negative outlook.
Rome, now teetering on the brink of a Detroit-style bankruptcy, has served Italy's new prime minister his first major political headache, the Wall Street Journal reported today. On the first day of his premiership, Matteo Renzi had to withdraw a decree, promulgated by his predecessor, that would have helped the city of Rome fill an €816 million ($1.17 billion) budget gap, after filibustering by opposition lawmakers in the Parliament on Wednesday signaled the bill had little likelihood of passing. Rome must now face unpalatable choices — such as cutting public services, raising taxes or delaying payments to suppliers — to gain time as it search for ways to close a budget gap. If it fails, the city could be placed under an administrator tasked with selling off city assets, such as its utilities.
The U.S. Court of Appeals in San Francisco ruled that the California Public Employees’ Retirement System can challenge the legality of San Bernardino, California’s bankruptcy, Bloomberg News reported yesterday. The largest U.S. public employees’ pension can try in August to persuade the appeals court to overturn a lower court decision finding that the insolvent desert city was eligible for bankruptcy protection. CalPERS and the city have been in court-ordered mediation since last year, when Bankruptcy Judge Meredith Jury ruled that San Bernardino was entitled to court protection. San Bernardino sought chapter 9 protection from creditors on Aug. 1, 2012, blaming a fiscal emergency brought on by a $46 million budget shortfall. Since filing, the city has fought its employee unions in an effort to cancel their contracts and quit making certain payments to CalPERS.
Nearly two months into his tenure as Detroit mayor, Mike Duggan outlined a plan for adding jobs and removing abandoned buildings in the bankrupt city during his first state of the city address yesterday, Reuters reported today. Duggan, seeking to find an agenda of his own while operating in the shadow of Emergency Manager Kevyn Orr, is doing what he can with the bankrupt city's limited resources to make headway on some of its most visible problems: decreasing urban blight and creating safe neighborhoods. The new mayor traced the city's problems to jobs, outlining plans to attract and grow more businesses and get people to work through an improved and expanded bus service or by making car ownership less expensive through city-sponsored auto insurance.
Bankruptcy Judge Steven Rhodes yesterday refused to delay the process of approving Detroit’s debt-cutting plan, arguing that the city would run out of cash if it takes too long, the Detroit News reported today. “The problem with delay is the city will not have any more money to pay you if this is put off two or four or six months,” Judge Rhodes told attorney Carole Neville, who represents Detroit retirees. Following a 40-minute hearing, Rhodes filed a written order keeping Detroit’s bankruptcy case on track for a June 16 trial. During the trial, Detroit must prove it can accomplish a plan to shed debt and end the biggest municipal bankruptcy case in U.S. history. Retirees and other creditors had asked the judge to slow approval of the debt-cutting plan to give them more time to file objections. Judge Rhodes gave them until April 1.
Fitch Ratings said yesterday that Detroit's plan to deal with its $18 billion of debt and emerge from municipal bankruptcy would set a troubling precedent for the U.S. municipal bond market, Reuters reported yesterday. Under the plan Detroit filed in U.S. bankruptcy court on Friday, owners of certain general obligation (GO) bonds would take an 80 percent haircut on their investments. The city's two pension funds, meanwhile, would see higher recovery rates, aided by pledges worth about $830 million from philanthropic foundations, the Detroit Institute of Art and Michigan Governor Rick Snyder, who still must win legislative approval for the state's $350 million share. The rating agency took particular issue with the treatment of voter-approved unlimited tax GO bonds as unsecured. Insurance companies that guaranteed debt service payments on those bonds have sued the city over this treatment.
Bankruptcy Judge Steven Rhodes yesterday set a June 16 trial date for Detroit to prove it can accomplish a plan to shed debt and end the biggest municipal bankruptcy case in U.S. history, the Detroit News reported today. The scheduling order from Judge Rhodes comes three days after Detroit filed a plan to slash half its $18 billion in debt and upgrade aging infrastructure in a bid to turn around the Motor City’s decades-long decline. Judge Rhodes set aside 10 days for the trial, which would leave the city about three months to exit bankruptcy before the end of Emergency Manager Kevyn Orr’s appointment. In doing so, Rhodes urged the city and creditors to strike deals that could speed the city’s bankruptcy case. There are ongoing negotiations headed by Chief U.S. District Judge Gerald Rosen and a team of mediators. http://www.detroitnews.com/article/20140224/METRO01/302240072/Judge-set…
For further news, analysis and court documents from the Detroit chapter 9 case, including a copy of the proposed debt adjustment plan that was filed on Friday, make sure to visit ABI's "Detroit in Distress" page: http://news.abi.org/detroit
The U.S. Court of Appeals for the Sixth Circuit on Friday said that it will hear direct appeals by seven groups of petitioners, including pension plans for Detroit's police and firefighters, regarding the city's eligibility for bankruptcy, Reuters reported on Friday. "Upon consideration of the petitions to appeal and the responses thereto, a direct appeal to this court is warranted," the court said in an order filed on Friday. It said it would not expedite the appeals for the time being. In a December ruling, Bankruptcy Judge Steven Rhodes said that Detroit was eligible to pursue its bankruptcy case. In his ruling, Judge Rhodes said Detroit met federal requirements for bankruptcy protection primarily because it was insolvent and negotiations with its thousands of creditors were not practical.
Detroit's blueprint for dealing with $18 billion in debt and emerging from municipal bankruptcy requires cuts to worker pensions and even deeper cuts for bondholders, Reuters reported on Saturday. The potentially precedent-setting plan the city filed in bankruptcy court on Friday would cut retired worker's pensions by up to 30 percent while owners of bonds deemed unsecured would lose up to 80 percent of their investment. The fact that voter-approved general obligation bonds were lumped into the city's $12 billion unsecured debt pile has roiled the U.S. municipal bond market. Retirees and pension funds argued the proposed cuts go too deep, while bond insurers complained that bondholders were being treated unfairly and forced to bear most of the losses. Kevyn Orr, the city's state-appointed emergency manager, acknowledged that the plan is far from final, and will be subject to negotiation in the weeks ahead. http://www.reuters.com/article/2014/02/22/usa-detroit-bankruptcy-idUSL2…
In related news, Detroit’s creditors would be smart to take the deal laid out by Emergency Manager Kevyn Orr’s proposed reorganization plan, according to an editorial in yesterday’s Detroit News. While there’s a slight chance the pensioners and banks could fare better by mounting a prolonged fight, it’s more likely they’ll do worse. Pensioners particularly should weigh the merits of Orr’s plan of adjustment. This process began with them facing the loss of half to two-thirds of their benefits, had they been treated the same as other creditors. While most banks and bondholders are being asked to accept an 80 percent reduction in what they’re owed, general service retirees will lose 34 percent, and police and fire retirees 10 percent of their monthly checks. But if they settle quickly, according to the editorial, those numbers improve considerably, to a 26 percent loss for general service pensioners and 4 percent for retired cops and firefighters. http://www.detroitnews.com/article/20140223/OPINION01/302230004/-1/rss23
Detroit's state-appointed emergency manager expects to file a roadmap in federal court on Friday detailing how the city will treat some $18 billion of debt and other obligations as it tries to exit bankruptcy, Reuters reported yesterday. "Friday is the present expected day to file," said Bill Nowling, a spokesman for Kevyn Orr, the city's emergency manager. Bankruptcy Judge Steven Rhodes, who is overseeing Detroit's bankruptcy case — the largest municipal bankruptcy in U.S. history — set a March 1 deadline for the plan. The city sent a proposed plan to adjust its debts to creditors on Jan. 29. The city said that the proposed plan reflected discussions with creditors and said it could be modified before being presented in court.
