Bankruptcy trial delayed, new start date of Aug. 29

Bankruptcy trial delayed, new start date of Aug. 29

Judge Steven Rhodes decided the largest municipal bankruptcy trial in history should not start until the debtor — the city of Detroit — files another Plan of Adjustment. So he moved the start date from next week to Aug. 29.

(We discussed this possibility on WDET’s Detroit Today program. Listen here.)

The city has filed six previous Plans of Adjustment, “blueprints” it will use to restructure debt and city services. But city attorneys told the judge in court earlier this week that they plan to file yet another plan that will reflect a deal announced last week to potentially refinance $5 billion worth of Detroit Water and Sewerage Department bonds. Some creditors’ attorneys objected, saying they could not adequately represent their clients in the trial, also called a “confirmation hearing,” without seeing the city’s overall plan.

Judge Rhodes in his order today that “the Court concludes that this constitutes extraordinary cause to adjourn the dates and deadlines that it previously established.”

Under questioning from Judge Rhodes earlier this week, city attorney Heather Lennox, of the Jones Day law firm, admitted one reason the city did not want to delay the confirmation hearing was because the current Plan of Adjustment requires Detroit Emergency Manager Kevyn Orr to execute some of its provisions by order, a power granted to him by state law. When Orr’s term is up at the end of September, elected leaders won’t have the same ability. Lennox said those orders related to settlements on the Unlimited Tax General Obligation bonds and Limited Tax General Obligation bonds.

Here’s part of the exchange in court between Judge Rhodes and city attorneys on Tuesday.

Judge: It’s a question I’ve asked before, but I feel the need … To what extent is the urgency that the city feels about beginning and ending this trial motivated by the prospect of Mr. Orr’s leaving his emergency manager position? And if so, why?

City attorney Gregg Shumaker, of Jones Day: I know we’ve gone back and forth on this in the past, but a lot of it has to do with the implementation of the plan. …

Lennox: … The point of the proceeding is it does really impact more about what the plan does and the settlements we have and the timeframe for getting them done … if the plan is going to be confirmed, there are some critical things that need to be happening in the near term. … For example, retiree health care. The settlement that we reached with the Retirees’ Committee on retiree health care back in April is that at the end of this year, the city will exit the retiree health care business and it will be taken up by two VEBAs. They have to appoint trustees, contract with providers and administrators, develop programs, notify retirees, all before Jan. 1, 2015. That process takes a few months. We are coming dangerously close on being very tight on time for that. … We’re not sitting around waiting. There is a lot of work that is being done. But we don’t have VEBAs officially and we don’t have trust officers, and we can’t until the plan has an effective date. … there are some real world issues based on settlement that we accomplished months ago. …

Judge Rhodes: That’s an urgency that’s unrelated to Mr. Orr’s transfer out of his current position?

Lennox: There’s not much Mr. Orr can do about that state statute. … With respect to the plan, there are settlements and agreements in the plan that require powers and orders under PA 436 (Michigan’s emergency manager law). … For example, the LTGO and UTGO settlements, those require emergency manager orders. Those are orders that can’t be ordered until after confirmation.

Here’s the judge’s full order delaying the trial and setting new dates and deadlines for other happenings in the case:

8.13.14 8th Amended Scheduling Order