Oreos, broken lights, angry creditors: Detroit manager faced many pressures

By Karen Pierog

DETROIT, Oct 1 (Reuters) - When Kevyn Orr became Detroit's emergency manager 18 months ago, he sparked mistrust among residents and even created the possibility of civil unrest, he testified on Monday.

Orr, a corporate bankruptcy attorney tapped by Michigan's Republican Governor Rick Snyder in March 2013 to turn around Detroit's financial problems, said civil unrest fanned by "some elements" was a real concern as residents worried he would sell off city assets and "carry out the ill-will of Governor Snyder."

"There was some hostility," Orr said, adding that he received Oreo cookies from residents after his appointment.

Oreo cookies are black on the outside and white on the inside, and the term "Oreo" is a common slur against African-Americans meant as an accusation of betrayal to one's race. Orr, who is African-American, was taking control of a black majority city where eight in 10 Detroit residents are African-American, at the behest of a white governor.

"I'd say if you bring milk we'd have a snack," said Orr.

In two hours of testimony in U.S. Bankruptcy Court carefully steered by Detroit's attorney Greg Shumaker from law firm Jones Day, Orr described the resistance and pressures he has faced after deciding, with Snyder's permission, to file the biggest-ever U.S. municipal bankruptcy in July 2013.

Those problems included painfully slow public safety response times, wide-spread public lighting outages, out-of-date technology, massive amounts of blighted properties, and little money.

"(Detroit) had an inability to meets its bills when come due," Orr said, adding that those bills included payroll, while vendors waited as much as 100 days to get paid.

The city's financial creditors, meanwhile, were not willing to budge.

"Everybody wanted to get paid in full," Orr testified.

He also pushed for a speedier trip through bankruptcy court than recent cases, like Alabama's Jefferson County, which took two years to complete. The clock was also ticking on his 18-month term as emergency manager.

Last Thursday, Detroit's city council and mayor agreed to limit Orr's power to only the bankruptcy proceedings and take back control over the city's operations. His oversight will end fully once the bankruptcy plan is confirmed.

Orr, with the help of bankruptcy court mediators has reeled in settlements with most major creditors. He told the court he hoped to have a settlement with the last one, bond insurer Financial Guaranty Insurance Co (FGIC). While local media has reported the possibility of a deal with FGIC including a financial settlement as well as a real estate transaction, there has been no sign of FGIC letting up in court.

Orr also walked through creditor settlements related to the city's unlimited and limited-tax general obligation bonds, noting Detroit's default on that debt in October sparked ferocious lawsuits mainly from bond insurance companies.

Without the settlements, which provide a 74 percent recovery on unlimited-tax bonds and 34 percent on limited-tax bonds, Orr said the city risked costly litigation which raised the possibility of losing and having to pay off the bonds completely.

"I had no reason to believe anyone would throttle back in litigation," he said.

Orr will continue his testimony on Thursday before Judge Steven Rhodes, who must determine if Detroit's plan to shed about $7 billion of its $18 billion of debt and obligations is fair and feasible.

(Reporting By Karen Pierog, additional reporting by Lisa Lambert in Washington; Editing by Bernard Orr)