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Michigan Governor Rick Snyder (R) is optimistic that Detroit's bankruptcy case can be wrapped up during the remaining tenure of the emergency manager he installed to run the cash-strapped city, Reuters reported yesterday. Snyder appointed bankruptcy attorney Kevyn Orr to an 18-month posting as the city's emergency manager. Then in July, with Snyder's approval, Orr filed the largest municipal bankruptcy in U.S. history, citing a mountain of debt and liabilities in excess of $18 billion. Orr has said that he expects to depart by September 2014 at which point he also expects Detroit to emerge from bankruptcy. The federal judge presiding over Detroit's bankruptcy also has indicated he is seeking to move the case speedily through bankruptcy court.

National Public Finance Guarantee Corporation and Assured Guaranty Municipal Corp. — both of which insure Detroit bonds — filed a complaint seeking to block the city from diverting bondpayments to other activities, including paying for services, the Detroit Free Press reported on Saturday. Ambac Assurance, another bond insurer that backs Detroit debt, also filed a similar complaint seeking to force the city to pay its bond obligations. It marks the first big direct showdown between the city and its bondholders, which did not object to the city’s eligibility for chapter 9 bankruptcy. An eligibility trial is wrapping up today, with only labor creditors and retiree groups objecting. The bond insurers argued in a court filing that the city is unlawfully taking tax revenue that was meant for unlimited-tax general obligation bonds and is using it for other purposes. They asked Bankruptcy Judge Steven Rhodes to force the city to redirect the taxes to bondholders.

The financial adviser for Detroit's two pension funds testified in federal court yesterday that the city did not negotiate prior to filing the largest municipal bankruptcy in U.S. history in July, Reuters reported yesterday. The adviser's testimony came on the eighth day of an eligibility trial as Detroit tries to prove to Bankruptcy Judge Steven Rhodes that it is insolvent and that it acted in good faith when it deemed negotiations were just impractical. Bradley Robins, who is advising the funds, said he viewed a June 14 city report, which proposed offering unsecured creditors, including the pension funds, pennies on the dollar "as a shot across the bow…. I took it as the city putting the creditors on notice that it wanted to begin the process of wanting to have a discussion," he said. But Robins said no negotiations transpired, despite a handful of meetings between the creditors and the city before it filed for bankruptcy on July 18. Lawyers for the city, the unions, the retirees and the pension funds opposed to the bankruptcy are set to begin their closing arguments today.

Detroit sought court permission to borrow $350 million to help fund its record municipal bankruptcy, a loan that Moody’s Investors Service Inc. called “unprecedented,” Bloomberg News reported yesterday The city, in a bankruptcy court filing, said that most of the loan would be used to buy out interest rate swaps that have cost the city about $50 million a year. Moody’s, in a report for investors released yesterday, said that the city’s proposed use of financing known as a debtor-in-possession loan is unusual compared to corporate bankruptcies. “The impact of the proposal on the city’s existing creditors, as well the city’s near-term financial position and long-term financial recovery, are difficult to assess at this point given the number of contingencies that remain,” Genevieve Nolan, a Moody’s assistant vice president, said. The annual $12 million payments on the proposed loan would be far less than the $50 million the city would save each year by buying out the swaps, Detroit told U.S. Bankruptcy Judge Steven Rhodes in its filing yesterday.

Standard & Poor's Ratings Services on Wednesday assigned preliminary BBB and BBB-minus ratings to a $1.74 billion sewer warrants debt offering by Alabama's bankrupt Jefferson County expected this month, Reuters reported yesterday. The offering, which is meant to replace $3.1 billion of defaulted sewer debt, is central to Jefferson County's negotiated plan to end what is the nation's second-largest municipal bankruptcy after Detroit. S&P said that it had given a preliminary underlying BBB rating to Jefferson County's proposed series 2013-A senior-lien sewer revenue current interest warrants, series 2013-B senior-lien sewer revenue capital appreciation warrants, and its series 2013-C senior-lien sewer revenue convertible capital appreciation warrants. A BBB rating means that the county’s proposed debt is perceived to have adequate capacity to meet financial commitments, but still has vulnerabilities. The $500 million of senior lien bonds will be insured by Assured Guaranty Municipal Corp., which S&P rates AA-minus, according to the preliminary official statement for the deal expected to be priced through Citigroup the week of Nov. 18.

Former Michigan Treasurer Andy Dillon said yesterday that he was "very skeptical" that Detroit would be able to cut an out-of-court deal with its creditors to avoid bankruptcy after reviewing the city's June 14 report that said unsecured creditors would only receive pennies on the dollar, Reuters reported yesterday. Dillon, who resigned last month, testified on the seventh day of a trial to determine whether Detroit is eligible to reorganize its finances under bankruptcy protection. Dillon played a key role in the lead up to Detroit's July 18 bankruptcy filing by serving on review teams that scrutinized the city's finances. In a July 9 email to Michigan Governor Rick Snyder that was cited in court yesterday, Dillon wrote that there were "creative options" for Detroit's public pension shortfall, but he testified yesterday that he did not pursue any of those solutions because the pension deficit was "relevant but not a driving factor" behind the city's trip to U.S. Bankruptcy Court. Detroit has $18.5 billion in debt and other obligations, which the city and state say includes a $3.5 billion unfunded pension liability, a figure that is disputed by bankruptcy opponents in the case. The opponents, who include the city's labor unions, retirees and pension funds, are trying to prove that Detroit officials failed to try to negotiate a deal with them and other creditors ahead of the July 18 bankruptcy filing.

The city of Detroit will delay its plan to move retiree healthcare onto the Affordable Care Act exchanges because of problems that are plaguing the roll-out of the online insurance marketplaces, Reuters reported yesterday. Detroit planned to provide all city retirees who are not eligible for Medicare with a stipend to purchase health coverage on the Affordable Care Act to take effect on January 1, said Heather Lennox, the city lawyer. Instead, Detroit will delay the plan a month, extending the current coverage through January 31. Emergency Manager Kevyn Orr announced changes to current and retiree healthcare plans last month. Detroit has $5.7 billion in liabilities for healthcare and other retiree benefits, which accounts for about half of the city's $11.5 billion in unsecured debt. The city will provide most retirees under 65, who are not yet eligible for Medicare, $125 per month to purchase coverage on the healthcare exchanges. Retirees with disabilities will get $200 per month. Retirees over 65 will choose from three Medicare Advantage plans, in which the city will pay most or all of the premiums. They could also enroll in a Medicare Part D drug plan for which Detroit will pay the premiums.

Voters in Stockton, Calif. approved a tax hike yesterday, putting a city that had been regarded as a test case of pension spending in U.S. municipal bankruptcies closer to regaining solvency, Reuters reported yesterday. The increase in the sales tax in Stockton from 8.25 percent to 9 percent will raise about $300 million over 10 years and allow the city to move on with restructuring its finances and hire more than 100 additional police officers. Stockton recently filed its plan to exit bankruptcy with the judge overseeing its case. The plan includes concessions from current and retired employees, settlements with creditors and the expectation of revenue from the tax increase. Without that revenue, Stockton would have to restart talks with its creditors and cut $11 million in spending, said Bob Deis, the architect of the city's financial restructuring.

Alabama's Jefferson County is planning to sell $1.74 billion of sewer revenue debt during the week of Nov. 18 to complete its exit from bankruptcy, Reuters reported yesterday. The deal through Citigroup will be used to replace $3.1 billion of distressed sewer debt that pushed the county into chapter 9 municipal bankruptcy in November 2011. The county commission and the creditors agreed last month to a revised recovery plan that will pay about 53 cents on the dollar to creditors of the county's sewer system. About $500 million of senior lien sewer revenue current interest and capital appreciation warrants will be insured by Assured Guaranty, according to the deal's preliminary official statement. The deal, which also includes $1.24 billion of subordinate lien warrants, is structured with serial bonds with a maximum maturity of 2050 and term bonds with a top maturity of 2053.

When Stockton, Calif., filed for bankruptcy last year, the stage was set for a precedent-setting battle with Wall Street over whether bondholders or retired public employees should pay the price when a local government goes broke, but under the terms of recent settlements, bond insurers who are backing about $240 million in city debt will accept a "haircut" of as much as 50 percent on some bonds, Reuters reported yesterday. Retirees will keep their full pensions, though 1,100 of them will lose their retiree health insurance. Stockton voters today are likely to approve a sales tax increase that could all but seal a surprisingly speedy end to the city's bankruptcy case. Massive cuts to Stockton's budget will remain. The sales tax increase will raise about $300 million over 10 years and likely enable the city to emerge from bankruptcy early next year.