City Of Detroit Files Bankruptcy Exit Plan

Benzinga

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Detroit city attorneys filed a plan of adjustment with the bankruptcy court today to deal with the city's $18 billion in secured and unsecured debt.

The plan proposes investing roughly $1.5 billion over the next 10 years to city services, including police and fire services, garbage removal and streetlights. A statement released by Detroit Emergency Manager Kevyn Orr's office said up to $500 million of that will be dedicated to blight removal over the next five years.

Cuts to city retiree pensions were not as deep as originally estimated, said Laura Bartell, a Wayne State University School of Law professor and American Bankruptcy Institute member. Under the plan, police and fire retirees are facing up to a 10 percent cut to pensions, while general city retirees are facing roughly a 30 percent cut.

“When you think about before the case started, Kevyn Orr was talking about much more serious cuts to the pensioners,” Bartell said. “Obviously, any cut is difficult, but we're not talking 60 percent, 70 percent, 80 percent.”

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Contributions to the city's two pension funds would come from a potential $350 million endowment from the state of Michigan and $465 million from the Detroit Institute of Arts and private donors.

Orr said in his statement that he is satisfied with the progress made thus far.

“However, there is still much work in front of all of us to continue the recovery from a decades-long downward spiral. We must move swiftly to emerge from bankruptcy so that the financial distress harming the City can end. We maintain that the Plan provides the best path forward for all parties to resolve their respective issues and for Detroit to become once again a city in which people want to invest, live and work,” Orr said in the statement.

General Reaction

The General Retirement System for the City of Detroit released a statement saying the plan of adjustment is premature because there are still many issues being mediated.

“We are greatly disappointed that the POA contains debilitating and unnecessary cuts to accrued pension benefits and know the city can afford much better treatment to the people who have dedicated years of their lives in service of the city,” the statement said.

Gov. Rick Snyder also released a prepared statement after the filing.

“The state's focus is on protecting and minimizing the impact on retirees, especially those on fixed, limited incomes, restoring and improving essential services for all 700,000 Detroit residents and building a foundation for the city's long-term financial stability and economic growth,” Snyder's statement said.

Moving Forward

If confirmed, the plan of adjustment would become the contractual agreement between the city and its creditors, Bartell said. The plan would replace all pre-bankruptcy agreements between the two entities.

The next step in the process will be a hearing on the city's disclosure statement, which describes the plan. The disclosure statement is sent to all the creditors along with the adjustment plan and ballots to vote on the plan.

A confirmation hearing will occur after the voting process, where the judge will determine whether the plan meets requirements in the U.S. Bankruptcy Code. Dates for the hearing on the disclosure statement and the confirmation hearing have not been set yet.

“This is by far the largest, most complicated municipal bankruptcy in history,” Bartell said. “Everyone agrees on that.”

The full adjustment plan can be found here.

An overview of the plan is available here

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