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The city of San Bernardino, Calif., may impose cuts to its firefighters’ overtime and pension benefits in a bid to reach a bankruptcy exit plan, the federal judge overseeing the case said yesterday, according to Reuters. In a tentative ruling, U.S. Bankruptcy Judge Meredith Jury said that San Bernardino was entitled to unilaterally impose benefit cuts on the city's firefighters, something their union had fiercely opposed. Jury conceded that the cuts, which involve greater pension contributions by firefighters and reduction in overtime, were a hardship on the firefighters, but she said that the city had also been persuasive in showing that what it had been paying in terms of benefits to the firefighters was a financial burden, and being able to reject the firefighters' collective bargaining agreement was a key step to forming a bankruptcy exit plan, which the judge expects the city to produce no earlier than next year. San Bernardino, a city of 205,000 located 65 miles east of Los Angeles, filed for bankruptcy in August 2012 with a budget deficit of $45 million.

A federal judge yesterday ordered ongoing mediation in Detroit's historic bankruptcy over a potential settlement between the city and one of its fiercest creditors, and added holdout creditor Financial Guaranty Insurance Co. to the list of parties whose attendance is required, Reuters reported yesterday. U.S. District Judge Gerald Rosen, the chief mediator in the city’s bankruptcy case, ordered that mediation, which began yesterday, will also take place today and will continue "day-to-day thereafter as deemed necessary, until released by the mediators." The city and Syncora Guarantee Inc, the bond insurer that had been the fiercest holdout creditor in the case, notified the bankruptcy court on Tuesday that they had reached a settlement in principle. Sealing that deal would leave FGIC, another bond insurer, as the only major holdout creditor left in the Detroit bankruptcy. Both Syncora and FGIC faced recoveries of 10 cents on the dollar or less in the bankruptcy as other creditors including the city's pension funds reached deals. U.S. Bankruptcy Judge Steven Rhodes on Wednesday put Detroit's case on hold until Monday in the wake of the potential deal.

The fate of Detroit’s watershed settlement with Syncora Guarantee Inc. may hinge on whether the bond insurer can win concessions from other creditors, including Bank of America Corp. (BAC) and retired city workers, Bloomberg News reported yesterday. The agreement, announced in a court filing on Sept. 9, would remove a big obstacle from Detroit’s path to resolving its record municipal bankruptcy and cutting more than $7 billion in debt. The deal with Syncora also leaves fellow bond insurer Financial Guaranty Insurance Co. as the only major creditor opposed to Detroit’s program. Earlier this year, Bank of America’s Merrill Lynch unit and UBS AG agreed to take less than they were owed by Detroit on soured interest-rate swaps, potentially triggering their right to collect insurance from Syncora. The New York-based insurer thinks its settlement with Detroit can’t go forward unless the banks give up their right to insurance. Detroit’s representatives, on the other hand, take the position that Syncora can still drop its objections to the city’s debt-reduction plan and go ahead with the settlement no matter what UBS, Bank of America and other creditors decide.

Detroit and one of its last hold-out creditors, Syncora Guarantee Inc., have reached an agreement in principle over the city's plan to adjust its debt and exit bankruptcy, Reuters reported today. The city and the bond insurance company asked the bankruptcy court to suspend an ongoing confirmation hearing on the plan until Friday so they can "address certain conditions and logistics." In a separate filing yesterday, Bankruptcy Judge Steven Rhodes said that he would hear the motion to delay this morning. Syncora, which insured some of the city's $1.4 billion of pension debt and related interest-rate swaps, emerged as Detroit's fiercest opponent in the biggest-ever municipal bankruptcy the city filed in July 2013. The company and its legal team are "hopeful the deal will be finalized in the next 48 hours," said James H.M. Sprayregen, an attorney from Kirkland & Ellis who represents Syncora.
http://www.reuters.com/article/2014/09/10/usa-detroit-bankruptcy-syncor…

In related news, Detroit and its suburbs agreed to create a regional water authority to serve two-fifths of Michigan residents as part of a deal that will make it easier to end the biggest municipal bankruptcy in U.S. history, Bloomberg News reported yesterday. “There has been 40 years of conflict between city and suburbs over water,” Detroit Mayor Mike Duggan said yesterday. Three suburban counties have been fighting the city’s proposal to extract tens of millions of dollars from its water department, claiming it would trigger rate increases and prevent needed repairs. The deal ends the counties’ opposition to the city’s bankruptcy-exit plan, Duggan said.
http://www.bloomberg.com/news/print/2014-09-09/detroit-new-water-agency…

The law firm shepherding Detroit through the biggest-ever municipal bankruptcy has charged the city just over $26 million, according to a report yesterday from a court-appointed fee examiner, Reuters reported. The supplemental report adds $3 million in fees and nearly $83,000 in expenses billed in March by Jones Day, the former law firm of Detroit's state-appointed emergency manager, Kevyn Orr. Those amounts were not included in the January-March quarterly report fee examiner Robert Fishman submitted to U.S. Bankruptcy Court on Aug. 5. The addition of the March numbers brings Jones Day's total billing from July 2013 to March 2014 to $25.1 million in fees and $1 million in expenses. It also brings the total price tag for all of Detroit's professional services in the historic case and reported so far by the fee examiner to about $55 million.

Detroit’s municipal computer systems are “beyond fundamentally broken” and holding back the city’s recovery, its chief information officer testified, Bloomberg News reported yesterday. The antiquated desktop computers can take 10 minutes to start up, and basic software is “generations behind,” Beth Niblock, the official, told a federal judge today as the city started its second week of a trial over a plan to reduce its $18 billion debt burden. Niblock was Detroit’s third witness in favor of the plan. All three said old technology is hampering recovery. Under emergency manager Kevyn Orr, the city is pouring millions into new systems that will take years to install and make fully operational. The city’s debt-cutting plan would help fund new computers, buses, police cars and fire equipment by paying creditors, including bondholders and retired city workers, less than they are owed. Detroit plans to spend more than $80 million on information technology by 2023, according to court documents.

Detroit could not afford to undertake a series of necessary improvements without a court-approved plan to shed a chunk of its debt, a city consultant testified on Friday at a court hearing, Reuters reported. Charles Moore, a senior managing director at restructuring firm Conway MacKenzie Inc., said that the six areas of Detroit's government that have been targeted for $1.7 billion of reinvestment initiatives running through June 30, 2023, were essential for the city to provide adequate levels of services to residents and businesses. "Without the plan, it's uncertain to me how the reinvestment initiatives can be funded," Moore testified during the fourth day of a hearing to determine whether the city's debt adjustment plan is fair and feasible. Detroit last year filed the largest municipal bankruptcy in U.S. history. It would shed about $7 billion of its $18 billion of debt and obligations under the plan and the city has reached settlements with most of its major creditors, including pension funds and unions.

Revenue projections in Detroit's debt adjustment plan will be hard to achieve, but restructuring initiatives will bring in new money and help make Detroit's plan feasible, Detroit's chief financial officer said yesterday in bankruptcy court, Reuters reported. John Hill, who was appointed the city's CFO last November, testified that the plan would eventually gain money for Detroit as the restructuring initiatives bring about changes, including higher collections of unpaid taxes. Hill was the first witness called by the city of Detroit as it seeks a federal bankruptcy judge's endorsement of its financial restructuring plan. If revenue comes in below projections after Detroit emerges from bankruptcy, that would lead to changes in the plan, which would require the approval of an oversight commission created for the city under Michigan law, according to Hill. The CFO referred to the city's plan to shed about $7 billion of its $18 billion of debt and other obligations as a road map for operating Detroit once it exits the biggest-ever U.S. municipal bankruptcy.

Bankruptcy Judge Steven Rhodes has ordered Detroit and civil rights attorneys into two weeks of confidential mediation over the city's practice of shutting off water to residents with unpaid bills, Reuters reported yesterday. Judge Rhodes will announce on Sept. 17 whether he will issue a temporary restraining order on Detroit's controversial attempt to reduce its $90 million backlog of unpaid water bills, according to an order signed on Tuesday and publicly released on Wednesday. Until then, the court's chief judge, Phillip Shefferly, will mediate negotiations with the bankrupt city and those who filed a class action to stop the city from cutting off water access to delinquent accounts.
http://www.reuters.com/article/2014/09/03/usa-detroit-water-idUSL1N0R40…

In related news, Detroit’s proposal to exit its record municipal bankruptcy by paying retirees more than bond investors will cause “serious mayhem,” an attorney for the plan’s opponents told a judge, Bloomberg News reported yesterday. Marc Kieselstein, an attorney for bond insurer Syncora Guarantee Inc., outlined the opponent’s case against the city’s proposal on the second day of a trial in Detroit federal court. The bond insurer says that the plan would illegally pay retired city workers much more on their claims than investors who hold more than $1.4 billion in pension-related debt. Bankruptcy Judge Steven Rhodes has set aside seven weeks to hear arguments and evidence concerning the plan before deciding whether it’s fair and feasible.
http://www.bloomberg.com/news/print/2014-09-03/detroit-bond-insurer-say…

Creditors can’t force Detroit to sell its art collection to cover their claims, the city said on the first day of a trial over its proposal to eliminate more than $7 billion in debt in the biggest U.S. municipal bankruptcy, Bloomberg News reported today. “Unsecured creditors have no rights” to be paid with art proceeds or any other city asset, Bruce Bennett, a lawyer for Detroit, said yesterday, attacking the main complaint by bond insurers who may be forced to make up investor losses imposed by the plan. Municipal debt investors should have known when they lent the city money that the only way to force Detroit to pay them was to sue and win a court order raising property taxes, said Bennett, a partner at the Jones Day law firm. That couldn’t be done without driving landowners away, he said. Bankruptcy Judge Steven Rhodes has set aside seven weeks to hear arguments and evidence for and against the plan before he decides whether it’s feasible and fair.
http://www.bloomberg.com/news/print/2014-09-02/detroit-bankruptcy-trial…

In related news, Bankruptcy Judge Steven Rhodes yesterday denied motions by two bond insurance companies that sought to block Detroit from presenting certain evidence at a key hearing on the city's plan to exit bankruptcy, Reuters reported. Judge Rhodes said that while he rejected the pretrial motions by Syncora Guarantee Inc. and Financial Guaranty Insurance Co., the companies were not precluded from bringing up their objections during the confirmation hearing on Detroit's debt adjustment plan. While Detroit has settled with most of its major creditors, including the city's two pension funds, Syncora and FGIC have emerged as its biggest hold-out creditors. Both guaranteed payments on $1.4 billion of pension debt the city is seeking to void and both are facing recoveries of just pennies on the dollar. Attorneys for the insurers argued that their clients would be harmed during the hearing if Detroit were allowed to bring up matters that the insurers were blocked from investigating.
http://www.reuters.com/article/2014/09/02/usa-detroit-bankruptcy-eviden…