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Detroit's credit outlook was raised to stable from negative by Standard & Poor’s after the governor named an emergency manager to run it, Bloomberg News reported on Friday. To lead the turnaround of the state’s largest city, Michigan Governor Rick Snyder yesterday chose Kevyn Orr, a Washington, D.C.-based bankruptcy lawyer who helped Chrysler Group LLC reorganize in 2009. A recent review declared it in a financial emergency with a deficit that hit nearly $327 million in 2012 and long-term debt topping $14 billion. "We view the appointment of an emergency manager as a positive step toward regaining structural balance and improving the city’s overall financial condition," said Standard & Poor's credit analyst Jane Hudson Ridley. The city’s continued B rating on general-obligation bonds, five steps below investment grade, reflects its financial imbalance, revenue shortfalls and long-term obligations including potential swap-termination payments and unfunded retirement costs, the company said.

Michigan Governor Rick Snyder (R) yesterday announced a state takeover of Detroit's finances and appointed a corporate bankruptcy expert to reverse the city's financial woes, Reuters reported yesterday. Kevyn Orr, an attorney best known for his work on the restructuring of Michigan-based automaker Chrysler, said that he hoped to avoid a bankruptcy filing by Detroit, which, if it occurred, would rank as the biggest municipal bankruptcy in U.S. history. Orr was officially approved by a committee of state officials yesterday and is expected to assume financial management of Detroit on March 25. As the emergency manager, he will supplant the authority of Detroit's elected officials, both the mayor and the city council. Orr will have broad powers, including the ability to renegotiate labor contracts, privatize services and sell certain city assets. A law passed in December that will take effect on March 28 will boost the powers of the emergency manager, allowing the manager to terminate collective bargaining agreements with the city's 48 unions.

Jefferson County, Ala., leaders expect to file a bankruptcy exit plan to the court in early June that will show how much it intends to pay back bondholders who extended $3.6 billion to fix its leaky sewer system, a county official said, Dow Jones Daily Bankruptcy Review reported today. Jefferson County Commission President David Carrington said he does not know whether the 658,000-resident county's proposal will have support from bondholders, who have the power to vote to reject the plan.

Michigan Governor Rick Snyder (R) is expected to announce today an emergency state takeover of Detroit, putting a lawyer with extensive experience managing corporate bankruptcies in charge of the destitute city's finances, Reuters reported. The top candidate for the job is Kevyn Orr a partner in the Washington, D.C., law firm Jones Day, who has long experience handling corporate bankruptcy and restructuring cases. Detroit is the poorest major city in the United States with more than a third of the population officially classified as living in poverty, and it has an unemployment rate of 18.2 percent compared with a national rate of 7.7 percent, according to government figures.

Bankrupt San Bernardino is threatening to sue the state of California over demands it owes millions of dollars in property taxes, Reuters reported today. In letters dated February 21 and March 4, the California Department of Finance demanded the city pay $15.2 million in property taxes related to its former redevelopment agency. If the city does not pay the money by April 3, the state could dock the funds from San Bernardino's future sales and property tax revenues, the letters state. In response, San Bernardino's city attorney said in a letter to California's state controller, John Chiang, that the threat to withhold tax revenue is "illegal" and a "willful violation" of federal bankruptcy law, which protects debtors from creditors' demands during proceedings. If California does not withdraw its threat to dock future city revenue, "the city will have no choice but to institute proceedings" against the state controller and other state officials, James Penman, San Bernardino's city attorney, wrote in a March 8 letter.

Kevyn Orr, a partner in Washington, D.C. with the law firm Jones Day, is expected to be named as Detroit’s emergency financial manager by Michigan Governor Rick Snyder this week, Reuters reported yesterday. Orr has wide experience in business restructuring and a reputation as a calm leader who thoughtfully considers a range of views. Orr established himself as a restructuring leader during Chrysler's intense five-week dash to complete its sale to Fiat in 2009, a turnaround that some considered improbable at the time. Richardo Kilpatrick, a Detroit attorney who worked with Orr in the U.S. Trustee's office, said he expected Orr to try to work by consensus rather than by force. "He's got the right skill set to deal with the issues confronted here, if anybody does," Kilpatrick said. One decision that Orr is likely to face is whether to recommend the city file for bankruptcy, which, if allowed by the state, would be the biggest municipal bankruptcy in U.S. history. It has "operational dysfunction" in its government, debt of $14 billion, and a deficit projected to hit more than $100 million when its fiscal year ends on June 30, according to a report commissioned by the governor. On Monday, Detroit Mayor Dave Bing said the city had chosen Jones Day as its restructuring counsel.

The bankrupt California city of San Bernardino improperly transferred nearly $110 million in cash and other assets from its redevelopment agency to an entity run in part by the city’s mayor and some council members, the state controller said, Reuters reported yesterday. The city, located about 65 miles east of Los Angeles, has also improperly held onto another $420.5 million in former Redevelopment Agency (RDA) assets, according to a review by controller John Chiang. San Bernardino’s RDA was one of about 400 agencies eliminated last year across California as a result of legislation spearheaded by Gov. Jerry Brown. The goal was to free up property tax revenues controlled by the RDAs for use in funding schools and other services. Chiang said that San Bernardino, which declared bankruptcy on Aug. 1, should not have transferred $108.4 million in assets from its RDA to the nonprofit San Bernardino Economic Development Corporation (EDC) when the city's RDA was dissolved, adding that the transfer was illegal because the city controls the EDC. According to the EDC's website, its seven-member board of directors includes San Bernardino’s mayor, as well as a current and former council member. San Bernardino, in a response in November to Chiang's initial assertions, said its transfer of assets was legal.

French bank Société Générale is exiting America’s biggest municipal bankruptcy, saying that it had sold its holdings of defaulted sewer warrants issued by Alabama’s Jefferson County, Reuters reported yesterday. The bank, along with JPMorgan Chase, Bank of New York Mellon and other global financial institutions, was one of the most prominent creditors of Jefferson County when the county filed its $4.23 billion bankruptcy in November 2011, but now the bank is moving to wind up its role in court battles. Lawyers also asked that Société Générale be dropped from two appeals in the tangled and costly legal case, saying that the bank “was no longer interested in pursuing the claims that are subject of the appeal(s).” The Société Générale filings did not detail the value of the sewer warrants it had sold nor identify the buyers, though the bank filed three claims against the county of about $118 million each in 2011. Société Générale’s filings come as negotiations continue between the county, whose bankruptcy was mostly caused by soured sewer debt now valued at $3.2 billion, and some creditors may result in reductions in the value of the debt.

Moody's Investors Service said that the city of Detroit would have a potential path to bankruptcy court under a state-appointed emergency financial manager, posing risks to the city's bondholders, Reuters reported yesterday. The credit ratings agency, which rates the city of Detroit with a negative outlook of "Caa1," said that the appointment of a manager under a current Michigan law or a new law that takes effect later this month "would be one procedural step closer to a bankruptcy filing" that could lead to delayed or reduced payments to bondholders. The manager could ultimately recommend a chapter 9 bankruptcy as the best remedy for Detroit. A bankruptcy filing by Detroit, which could be blocked by Michigan officials, would be the largest ever in the United States.

Michigan Governor Rick Snyder cleared the way for a state takeover of Detroit, declaring that the city faces a fiscal emergency and that he has identified a top candidate to assume its management, Reuters reported on Friday. Snyder's declaration on Friday virtually assures that the state of Michigan will assume control of Detroit's books, and eventually decide whether the city should file the largest municipal bankruptcy in U.S. history. Detroit has faced the steepest population decline of any major American city in recent decades. Once the fifth largest U.S. city, it now ranks 18th in size with about 700,000 people. A report commissioned by Snyder has described what it called "operational dysfunction" in the city government, crushing debt of $14 billion and a current fiscal year budget deficit of $100 million.

For further analysis of Detroit's fiscal distress and more information on chapter 9 bankruptcy, be sure to pick up a copy of ABI's Municipalities in Peril: The ABI Guide to Chapter 9, Second Edition.