Now that pensioners have voted in favor of the city’s bankruptcy restructuring plan, attorneys will use the results in the case’s confirmation hearing. WDET’s Sandra Svoboda spoke with Wayne State Law Professor Laura Bartell about what the balloting means and what the next steps are in the historical case.
Sandra Svoboda: As you look at the vote from the pensioners on the Plan of Adjustment, what strikes you about the results?
Laura Bartell: It was overwhelming support, which, in fact, was a little surprising I think most people thought they would support it but perhaps not by such a large margin.
SS: What does the city do with the results now?
LB: This is only one step that the city has to take to get its Plan of Adjustment confirmed. It now will have a trial in the bankruptcy court where it will argue to Judge Rhodes that all of the requirements of Chapter 9 for confirmation of a Plan of Adjustment have been satisfied.
SS: What do we expect the creditors to say about that?
LB: The creditors who voted no will argue that the plan does not satisfy the requirements for a “cramdown” under the bankruptcy code in that they will argue that the plan discriminated unfairly against them and is not fair and equitable to them, both standards that must be satisfied to confirm.
SS: Explain what the “cramdown” means exactly.
LB: Cramdown is simply a plan that is confirmed over the objection of one of more classes of impaired claims. You always have to have at least one class of impaired claims voting yes in order to confirm a plan.
SS: What recourse do the financial creditors have who are really going to be taking pennies on the dollar compared to the pensioners.
LB: Their argument is that the plan cannot be confirmed. If Judge Rhodes nevertheless confirms the plan, their only recourse is appeal.
SS: Do we have any indication of what the judge will think of this or how he’ll use the results going forward?
LB: The judge has always shown great sympathy to the pensioners. I do not believe that he will conclude that the plan unfairly discriminates in favor of the pension or is not fair and equitable to all creditors. My best guess, under the circumstances that he will confirm.
SS: Of everything that’s surrounded this case, the pensioners really had the most emotional, maybe, element to them. Does this vote remove that at all?
LB: Oh no, obviously, they are being hurt. Bankruptcy hurts people and in this case it hurts real people in Detroit and around the country who were relying on those pensions to live. That’s emotional, confirmation or no.
SS: The favorable vote from the two classes of pensioners, police and fire in one group and the non-uniform workers and retirees in another, brings the grand bargain into play. How unique is this outside funding in bankruptcy cases?
LB: It is unique as you say. It has never been accomplished before in any other bankruptcy and I doubt it will ever be replicated.
SS: In the future when other municipalities are maybe in the situation of considering bankruptcy, what do they take away from the vote this week in informing their own case?
LB: They will certainly see that it is possible to get a favorable vote from pensioners whose pensions are being cut. Now in other cases they’re not likely to have the grand bargain funds to sweeten the pot for those pensioners so they will have to allocate the funds they do have available in such a way as to encourage a favorable vote by those pensioners.
SS: Between now and trial what should we look for developing in the case?
LB: The bond insurer Syncora has argued consistently that it was entitled to Detroit’s casino revenues. The bankruptcy judge and the district court have now ruled against Syncora allowing those funds to become part of the bankruptcy estate and therefore allocated to other creditors. Syncora has appealed that decision to the Sixth Circuit. The Sixth Circuit has scheduled a hearing on that appeal at the end of July. That will be a major decision that could affect the ability to confirm the Plan of Adjustment.