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The U.S. judge overseeing Detroit's historic bankruptcy dropped hints on Tuesday on what he wants to hear in the city's closing statements and what he may be scrutinizing in creditor settlements, Reuters reported yesterday. The city's emergency manager also testified in federal court yesterday that a recent settlement with the last major holdout creditor was important for keeping elements of Detroit's debt-adjustment plan together. Bankruptcy Judge Steven Rhodes said that he wants the city to explain its settlements with creditors, its exit financing, the "reasonableness" of consultants' fees and the business justification for discrimination among classes of unsecured creditors in closing arguments scheduled for Oct. 27. Rhodes is conducting a hearing that started on Sept. 2 to determine whether the plan for adjusting $18 billion of debt and exiting the largest-ever municipal bankruptcy is fair to creditors and feasible for the city to carry out. FGIC, which has a $1.1 billion exposure from insuring Detroit pension debt, would receive a 13 percent recovery in the plan under the settlement reached last week. Detroit Emergency Manager Kevyn Orr testified that without that settlement, the court might have rejected the restructuring plan and thereby scuttled all the settlements the city has forged. He added that Detroit's two retirement systems would have been under threat of lawsuits related to the pension debt.

Bankruptcy Judge Steven Rhodes said yesterday that he would rule during the week of Nov. 3 on Detroit's plan to adjust its debts and exit the biggest-ever municipal bankruptcy, Reuters reported yesterday. Judge Rhodes said that he would issue an oral ruling in court late that week on whether the plan is fair to creditors and feasible for the city to carry out. He also set Oct. 27 for closing arguments in the plan's confirmation hearing, which began Sept. 2. The wrap-up of the historic bankruptcy comes after Detroit reached settlements with all of its major creditors, including its two retirement systems and companies that guaranteed payments on the city's bonds.

A milestone agreement in Detroit’s record bankruptcy requires its last major creditors to help revitalize the city’s downtown in return for cutting their losses from a $1.4 billion pension deal that went sour, Bloomberg News reported on Friday. Financial Guaranty Insurance Co. would indirectly own and pay to redevelop the riverfront site of Joe Louis Arena -- home of the National Hockey League’s Detroit Red Wings -- which will be demolished in 2017 when a new arena opens a mile away. FGIC would also get a share of $141.4 million in new notes in a deal announced yesterday in federal court in Detroit. The agreement brings the city closer to resolving its $18 billion bankruptcy, and would put a group of creditors that includes Aurelius Capital Management LP and and BlueMountain Capital Management LLC, owed about $1.1 billion, in charge of building a hotel and retail space in a downtown that civic leaders view as a linchpin of the city’s economic recovery.

San Bernardino had negotiated a tentative agreement with the union representing police officers in its chapter 9 debt-adjustment proceeding, but the police union said in a filing last week that the city revoked the agreement, having been “emboldened” by two developments, Bloomberg News reported on Friday. In the San Bernardino bankruptcy, the court in September authorized the city to terminate the union contract with the bankrupt city’s firefighters. Of potentially more significance, the bankruptcy judge in the municipal bankruptcy of Stockton, Calif., said this month that the city’s liability on underfunded pensions is an unsecured claim with no higher rank than other unsecured creditors. The police union wants the San Bernardino judge at a hearing on Nov. 6 to establish a deadline for the city to file a plan.
http://www.bloomberg.com/news/print/2014-10-17/san-bernardino-police-wa…

In related news, San Bernardino leaders want to improve the city’s image after being stung by negative national and local media reports of violent crime, Bloomberg News reported on Saturday. Violent crime in the city is more than double the U.S. average, highlighted by recent incidents when gunmen critically injured a police officer and opened fire on children. The city of 210,000 asked public relations firms to submit proposals by today showing how they’d restore the inland suburb’s civic luster. The winning firm will get $125,000 a year to help San Bernardino “change how it is perceived by itself, its citizens and all those who come across the city of San Bernardino,” according to a request for proposals issued last month.
http://www.bloomberg.com/news/print/2014-10-20/bankrupt-san-bernardino-…

Detroit announced a settlement yesterday with its final major holdout creditor, Financial Guaranty Insurance Co., as it edged closer to exiting the biggest-ever municipal bankruptcy, Reuters reported yesterday. The settlement includes an option for FGIC to develop the Joe Louis Arena and parking garage for a mixed-use project, primarily a hotel serving the nearby Cobo Convention Center, according to Corinne Ball, an attorney at law firm Jones Day, which represents Detroit in the case. The bond insurer will also receive about $152 million in city notes, part of which will be backed by public parking revenue, as well as $19.7 million in credits it can apply for purchasing city parking assets or real estate. In return, FGIC, which has a $1.1 billion exposure from insuring the pension certificates of participation (COPs), will drop its objections to the city's plan to adjust $18 billion of debt, Ball told Bankruptcy Judge Steven Rhodes.

Detroit residents and retired public workers were given temporary control of the city’s historic bankruptcy trial to present their own case against its $7 billion debt-cutting plan, which includes pension reductions, Bloomberg News reported yesterday. Bankruptcy Judge Steven Rhodes set aside today for opponents who don’t have lawyers to try to persuade him to reject the plan. With the first presentation, the usual rules and traditions that govern federal trials began breaking down. A retired city employee, Wanda Jan Hill, got to question one of Detroit’s lead bankruptcy lawyers, despite a rule generally barring attorneys from testifying about the case they’re working on. Under questioning by Hill, Heather Lennox, a partner at the Jones Day law firm, acknowledged the city didn’t warn retirees in key documents that they would have to pay interest on money clawed back from a savings plan that overpaid some workers. Detroit is nearing the end of a bankruptcy trial that began Sept. 2. Since filing the biggest U.S. municipal bankruptcy case in history in July 2013, the city has cut deals with almost all of its major creditors, including pensioners. Yesterday, the last large holdout creditor, bond insurer Financial Guaranty Insurance Co., suspended its fight with the city to try to resolve its objection to the plan. FGIC and Detroit said that they will return to court today and either announce a deal or continue the trial.

A settlement with Financial Guaranty Insurance Co, the last major holdout creditor in Detroit's historic bankruptcy case, is close and could be announced tomorrow, Reuters reported yesterday. Detroit's attorney, Thomas Cullen at law firm Jones Day, told Bankruptcy Judge Steven Rhodes that the two sides "have made substantial progress." Alfredo Perez, FGIC's attorney, asked the judge for a delay in putting the bond insurance company's two witnesses on the stand until Thursday "to see if we can have a consensual deal by that time." FGIC, which has $1.1 billion on the line from insuring Detroit pension debt, is facing the possibility of having a minimal recovery forced upon it if a settlement is not reached and Detroit's plan to exit bankruptcy wins court approval.

Detroit's bankruptcy trial starts back up today after a week-long break as holdout creditors prepare to make their case against the city's restructuring plan, the Detroit Free Press reported today. Creditors' arguments are expected to take all week, setting up closing statements in Detroit's historic bankruptcy case next Monday. Bankruptcy Judge Steven Rhodes would then decide whether to confirm Detroit's plan of adjustment, a 10-year strategy to bring the city out of its financial crisis. At the heart of the plan is a $1.4-billion investment in city services. Meanwhile, settlement negotiations are ongoing between the city and its last major creditor, bondholder Financial Guaranty Insurance Co., which has a $1.1-billion claim against Detroit.

Jefferson County, Ala., wants the U.S. Court of Appeals to allow an immediate appeal of a federal judge's ruling that says sewer customers can continue their challenge of a bankruptcy exit plan, the Birmingham News reported today. Last week, U.S. District Court Judge Sharon Blackburn declined to dismiss as moot an appeal of the bankruptcy court's confirmation order filed by several sewer ratepayers. In a motion filed on Friday, the county asks Blackburn to allow it to appeal the ruling to the United States Court of Appeals for the Eleventh Circuit. A bankruptcy judge had confirmed the plan of adjustment allowing the county to exit its $4.23 billion bankruptcy last year. A group that includes sewer customers and several local elected officials appealed confirmation of the plan.

If pension obligations are impaired in the Stockton, Calif., chapter 9 case, state lawmakers could respond by closing the door to bankruptcy for California municipalities, State Treasurer Bill Lockyer predicted on Wednesday, Bond Buyer magazine reported yesterday. "As a lawyer and a policymaker, I have a different view about the fundamental issues of a state-run pension system and whether it's even subject to jurisdiction of a bankruptcy court in this circumstance," he said. U.S. Bankruptcy Judge Klein gave an oral ruling last week during a hearing on Stockton's proposed plan to exit bankruptcy that the city's California Public employees' Retirement System pensions can be adjusted in chapter 9 bankruptcy. The city had not proposed to impair its obligations under its plan, and has not indicated that it plans to do so following the judge's decision. Lockyer said that depending on what happens in the bankruptcy case, which is set to pick up again on Oct. 30, there could be major political consequences. "If it looks like bankruptcy judges in California are going to be activists in this domain, I wouldn't be very surprised to see a coalition of teachers, nurses, firefighters, law enforcement people, district attorneys—and the list goes on—all lobby to the legislature to change the rules so that no municipality can bring a bankruptcy action in a chapter 9 proceeding," Lockyer said.