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The judge overseeing Detroit's historic bankruptcy petition set Dec. 3 as the date for issuing his decision on whether the cash-strapped city qualifies as bankrupt under federal law, Reuters reported yesterday. Bankruptcy Judge Steven Rhodes will hand down his ruling in federal bankruptcy court in Detroit at 9 a.m. EST on that day. Judge Rhodes also is considering a request from one of the objectors, the American Federation of State, County and Municipal Employees, Detroit's largest union, which earlier this month asked the judge to allow any appeal to go directly to the U.S. 6th Circuit Court of Appeals, bypassing the U.S. District Court in Detroit. The city's unions, public-sector retirees and two pension funds have objected to Detroit's bankruptcy filing, arguing that Kevyn Orr, Detroit's state-appointed emergency manager, purposely drove the city into bankruptcy court and did not negotiate with creditors for an out-of-court settlement.

The impact of Jefferson County’s bankruptcy will reverberate for decades in Alabama and in the $3.7 trillion U.S. municipal bond market, according to an analysis by Bloomberg News on Friday. Creditors, including JPMorgan Chase & Co., agreed to forgive $1.4 billion of the county’s $3 billion sewer bonds. For the next 40 years, residents and businesses that already have some of the highest sewer rates in the country will pay back more in principal and interest than they owed before the bankruptcy, according to an analysis by Jim White, a Birmingham-based financial adviser who did an analysis for residents challenging the bankruptcy plan. Bankruptcy Judge Thomas Bennett dismissed objections to the county’s debt-reduction plan based on White’s analysis. The willingness of Alabama’s most populous county to enter bankruptcy, along with the losses imposed on creditors, may make bondholders of other distressed municipalities more willing to negotiate outside of court. Some hedge funds benefited by purchasing defaulted bonds for about 65 cents to 70 cents on the dollar from banks that dumped the debt and received about 80 cents on the dollar as part of the bankruptcy plan.

Detroit's state-appointed emergency manager and its mayor-elect announced the appointment yesterday of a new chief financial officer for the cash-strapped city, Reuters reported yesterday. John Hill, the former chief executive officer of a business-backed civic group for Washington, D.C., was tapped to lead Detroit's finance department and work on the city's restructuring team, according to the announcement by Emergency Manager Kevyn Orr and Mayor-elect Mike Duggan. Hill, a certified public accountant, headed Washington's Federal City Council from 2004 to 2012. He previously served as executive director of that city's Financial Control Board, which was created by Congress in 1994 to take over the U.S. capital city's finances and budget.

To shed more than $1.4 billion in debt, Jefferson County, Alabama agreed to give up some of its power to set future sewer rates, a compromise that means the second-biggest U.S. municipal bankruptcy might be brought back to life decades from now, Bloomberg News reported yesterday. Bankruptcy Judge Thomas Bennett yesterday approved the county’s debt-adjustment plan, which was built on a settlement with JPMorgan Chase & Co. and other creditors. That deal requires the bankruptcy court to retain authority over the county until $1.84 billion in new sewer debt is paid off in 40 years. The unusual agreement will allow a trustee for warrant holders to seek authority, after the bankruptcy case becomes inactive, to force any sewer rate increases that may be needed to pay the debt. After Judge Bennett issues a written ruling, the county can close on $1.84 billion in new financing on Dec. 3 that will be used to pay creditors. With the closing, the active part of the case will end, leaving only minor legal issues to be addressed, said Patrick Darby, an attorney for the county.

Eric Rothstein, a county utility rate consultant, said that Jefferson County, Ala.’s bankruptcy deal with JPMorgan Chase & Co. and other creditors would lock in more than $1.4 billion in concessions without the risk of suing the bank, Bloomberg News reported today. Rothstein said yesterday that those savings are a safer proposition than the $1.6 billion that could be won in a lawsuit that opponents of the county’s bankruptcy exit plan want to pursue. Rothstein was testifying at the start of a hearing on whether to approve Jefferson County’s bankruptcy-exit plan, which is built on concessions from JPMorgan and other creditors. The proceeding is set to continue today before Bankruptcy Judge Thomas Bennett, who will decide whether to approve the plan or side with two groups of lawyers who want to sue the bank and others for their role in issuing more than $3 billion in debt that was tainted by a bribery scandal.

Detroit Emergency Manager Kevyn Orr's office said yesterday that Detroit has paid almost $23 million in fees to lawyers, consultants and financial advisers through Oct. 1, including nearly $11 million to law firm Jones Day, which is representing the city in bankruptcy court, Reuters reported today. Detroit, which is awaiting a decision from a federal bankruptcy judge to determine if it is eligible for bankruptcy protection, has agreed to pay more than $60 million to more than a dozen firms aiding in its restructuring efforts, Orr's office said. Through Oct. 1, the city has paid $4.59 million to Conway MacKenzie, a Detroit area restructuring firm, and $4.17 million to accounting firm Ernst & Young. Accounting firm Plante Moran was paid $1.5 million through Oct. 1 and investment banking firm Miller Buckfire was paid $1.2 million.

Jefferson County, Ala., which just became the first municipality to tap the public bond markets while bankrupt, will go to court today to seek approval for its plan to exit bankruptcy by the end of this year, the New York Times reported today. But there is a catch: Even if Jefferson County does emerge from bankruptcy soon, it will not fully sever its ties to the bankruptcy court in Birmingham for 40 more years. The county’s unusual exit plan, which could offer a possible template for other bankrupt municipalities, calls for the court to retain jurisdiction for the life of $1.8 billion in sewer-revenue debt that it sold over the last few days. If the county falters at some point, even decades from now, the bankruptcy court is supposed to have the power to enforce rate increases to produce the cash needed to pay back the $1.8 billion on schedule, with interest.
http://dealbook.nytimes.com/2013/11/19/a-municipal-bankruptcy-may-creat…

For further analysis of the Jefferson County bankruptcy and municipal distress, be sure to pick up a copy of ABI's Municipalities in Peril: The ABI Guide to Chapter 9, Second Edition from the ABI Bookstore.

Detroit could end up paying almost twice as much in interest as previously disclosed on a $350 million loan arranged by Barclays Capital, according to a fee letter made public yesterday after a judge ordered it unsealed last week, Reuters reported today. Bankruptcy Judge Steven Rhodes on Thursday thwarted efforts to keep the cost of a debtor-in-possession (DIP) financing under wraps, noting that the fee letter was subject to Michigan's Freedom of Information Act. The letter disclosed that Barclays would collect 1.25 percent of the loan, but not less than $750,000, for committing to a controversial financing deal with Detroit. The city and Barclays Capital had requested the fees be kept a secret because the details are commercially sensitive and might raise the price of the loan. One financial adviser who specializes in restructuring work said opponents of Detroit's proposed bankruptcy could object to the "market flex" provision of the fee letter by making the argument that the flex provision essentially allows the interest on the loan to be raised to 6.5 percent from the 3.5 percent previously cited by the city. Barclays is allowed raise the rate within 90 days of the closing of the loan if the bank is unable to find investors to buy up to half the loan, according to the unsealed fee letter.

The judge hearing Stockton, Calif.'s bankruptcy case yesterday scheduled a vote by the city's creditors on its plan to exit bankruptcy for February after approving its notice of deals it has struck with nearly all of them, Reuters reported. The only major creditors continuing to contest Stockton's plan are the Franklin High Yield Tax-Free Income Fund and Franklin California High Yield Municipal Fund, and they will be able to contest it after the vote in a trial in March, which will also serve as the hearing to confirm the city's plan, Bankruptcy Judge Christopher Klein said. Franklin holds $35 million in bonds issued by Stockton, which wants to pay $95,000 on the debt as part of its plan to exit bankruptcy.

Bankruptcy Judge Meredith Jury on Friday dismissed CalPERS’ request that she certify the pension giant’s direct appeal to the 9th U.S. Circuit Court of Appeals, a decision that San Bernardino officials have said will save the city time and money in its already sprawling fight with CalPERS, the San Bernardino County Sun reported on Saturday. The California Public Employees’ Retirement System (CalPERS) was seeking for a second time to appeal Jury’s decision that the city is eligible for bankruptcy protection. “The procedure asserted by CalPERS, in the Court’s view, is duplicative and not an efficient use of judicial resources,” Judge Jury wrote. “If this court had granted certification, CalPERS has proposed to also file a Motion for Leave in the 9th Circuit. This duplication is inefficient and possibly may lead to inconsistent results.” CalPERS should instead allow the district court to rule, then may request the district court certify the direct appeal, Jury wrote. After a year of hearings and over CalPERS’ objections, Jury ruled in August that San Bernardino was eligible for chapter 9 bankruptcy protection.