The last day of February was the deadline for creditors to object to the ambitious schedule set by Bankruptcy Judge Steven Rhodes for Detroit’s case. And object they did.
Reuters reports that one creditor, Syncora Guarantee Inc. “warned that lawsuits will be filed over the Detroit Institute of Arts’ collection, which the city is not selling at this point to help pay its $18 billion in debt.” In its filing, Syncora also threatened a long legal battle over the Detroit Institute of Arts collection, according to The Detroit News.
While all that was going on in federal court, the city was mailing ballots to 170,000 creditors, the Detroit Free Press reports, seeking their approval on the Plan of Adjustment filed Feb. 21 and how it would restructure the city’s debt.
Also Friday, citing the millions of dollars it would cost the city, Judge Rhodes granted the city’s request to disband a creditors committee, set up by the U.S. Trustee in December. The panel included bond insurer Financial Guaranty Insurance Co and the city’s two pension systems.
Earlier this week, our Detroit Journalism Cooperative partner through New Michigan Media, The Michigan Citizen, analyzed the Plan of Adjustment finding:
Activists say what is most significant in Orr’s plan is the transfer of assets, which includes Belle Isle, the Detroit Institute of Arts and Detroit’s Water and Sewerage department. The plan protects the banks, but does little to adequately improve city services or improve quality of life for Detroit residents.
Journalists and analysts around the country continue to dissect Detroit’s Plan of Adjustment and Disclosure Statement. Here is a collection of articles and posts about what some of the possible ramifications are on issues ranging from the city’s technology systems to pension fund disclosures to bond markets.
Reuters reports that Fitch Ratings finds the plan “hostile” for bond holders. “Fitch expects that this disregard for the rights of bondholders will factor into higher borrowing costs for local issuers, and ultimately for local property taxpayers, in Michigan.” Fitch sold the city $1.45 billion certificates of participation (COPS) for pension payments the 2005 and 2006, the subject of a city lawsuit filed last month.
Technology upgrades for police and better information systems for record keeping across city departments are part of the $150 million provision in Detroit’s Plan of Adjustment. The Detroit Free Press reports the investment could be returned threefold, as explained by Charles Moore, a city restructuring consultant with Conway MacKenzie. “This is better collection practices, improved pricing for fees, permits and licenses, and all of this is enabled by improved technology,” Moore says.
In its “Revenge of the 99 %” article, The Economist collects reactions from the bond markets to Detroit’s Plan of Adjustment and analyzes what it all means. But the author warns against too much sympathy for the bond insurers, who are looking at a mere 20 percent payout under the city’s Plan of Adjustment. “Another reason not to shed any tears for Detroit’s bondholders—despite their raw deal—is that it was their disastrous restructuring of the city’s pension debt in 2005 that became a key factor in driving the city to bankruptcy,” he writes.
Meanwhile, the Society of Actuaries, a professional association of risk experts, is calling for openness and transparency by Detroit’s pension funds, as reported by The New York Times DealB%k. The group argues for the release of the fair value of pension obligations and estimates of the annual cash outlays needed to cover them. “We think it would be a useful benchmark for plans to have,” said Robert W. Stein, the panel’s chairman, who is both an actuary and a certified public accountant. “We’re optimistic that the information would enable them to better appreciate the future and what it might bring.” Will Detroit’s pension funds change their course of resistance to such disclosure? And what are the implications of the release of such information?
-By WDET’s Sandra Svoboda
@WDETSandra and email@example.com
Bankruptcy Judge Steven Rhodes today issued a list of dates for hearings and deadlines related to the Detroit Bankruptcy and the city’s Plan of Adjustment.
Friday, Feb. 28: Deadline for Objections or Comments Regarding the Timeline
Friday, March 14: Deadline to request that the city include additional information in the Disclosure Statement
Friday, March 28: Deadline to file objections to the Plan of Adjustment or Disclosure Statement and to serve written discovery requests regarding the plan’s confirmation
Friday, April 4: Deadline for the City to file a response to objections to the Disclosure Statement
Wednesday, April 9: Deadline for attorneys with objections to “meet and confer” with City representatives
Friday, April 11: Deadline for City to file its combined response to objections to the plan
Monday, April 14: 9 a.m. hearing on unresolved objections to the Disclosure Statement and initial status conference on plan confirmation
Friday, April 18: Deadline to comply with written discovery requests
Monday April 28: 9 a.m. arguments on objections to the Plan of Adjustment that raise legal issues
Friday, May 9: Deadline to complete non-expert depositions and to designate expert witnesses and submit expert reports
Friday, May 23: Deadline to counter-designate experts and submit reports
Friday, June 6: Deadline to complete expert depositions
Tuesday, June 10: Deadline to submit pretrial briefs and proposed pretrial order
Wednesday, June 11: 9 a.m. Final pretrial conference on confirmation of the Plan of Adjustment
Monday, June 16: 9 a.m. Trial on confirmation of the Plan of Adjustment
From pensioners and poverty to municipal bond markets and the mighty backlash, national and local media offered up some thought-provoking reading over the weekend after Detroit filed its Plan of Adjustment and Disclosure Statement Feb. 21.
Here are five readings we thought worth sharing:
Detroit residents who work outside the city limits could find themselves paying income tax they owe to the city under a measure Emergency Manager Kevyn Orr slipped into Friday’s filings. The Detroit News reports on what it would take at the state level to collect the estimated $140 million that’s missing from the city’s coffers.
Religion and Ethics Newsweekly weighed in focusing on the effects on pensioners and the role the religious community has (hasn’t?) played in the bankruptcy’s aftermath. “Detroit is a city where people desperately need hope.”
Bloomberg reported “The filing opens a new, potentially more contentious phase of the biggest U.S. municipal bankruptcy” in its article examining how the Plan of Adjustment relies on creditor settlements.
CNBC focused on bond insurers and the backlash to the Plan of Adjustment, finding “investors directly in the line of fire made clear Friday they were braced for a legal battle.”
The New York Times looked to post-Katrina New Orleans for lessons Detroit could learn from, writing “The scale of the two cities and the nature of their calamities differ, but Detroit can learn from New Orleans, where a fix that appeared rational to some experts and civic leaders was thrown aside for a way forward that has been slower and messier but politically more palatable and, many here believe, fairer.”
Detroit Emergency Manager Kevyn Orr’s office has released a statement about the city’s Plan of Adjustment and Disclosure Statement filed today in U.S. Bankruptcy Court.
Here’s what the city considers the highlights of the plan:
* Devotes $1.5 billion over 10 years to capital improvements, blight removal and equipment and technology upgrades.
* During the next five years, up to $500 million of the $1.5 billion will go toward blight removal.
* Proposes 20 percent payment to unsecured, non-retiree creditors in the form of new securities from the city and a pledge to increase that if the city’s finances improve.
* Assumes $465 million from third-party donors and the Detroit Institute of Arts toward the pension funds over two decades, subject to city and pension fund agreement and conditions.
* Includes Gov. Rick Snyder’s proposal to send $350 million of state money to Detroit over 20 years.
* Allows that if police and fire pensioners agree to the plan and there is some settlement with the state, they could receive more than 90 percent of their pensions with the elimination of cost-of-living allowances. General retirees cold receive in excess of 70 percent of their pensions after elimination of cost of living allowances.
* Moves current city employees into defined benefit plans.
In other development, mediations continue toward agreements with key creditors in the process overseen by Chief U.S. District Judge Gerald Rosen. Talks are ongoing for the interest-rate, pension debt swaps agreement as well as the future of the Detroit Water and Sewerage Department.
Was Detroit even eligible to file for bankruptcy?
Today the 6th Circuit Court of Appeals agreed to answer that question, raised by a group of pensioners. The panel in Cincinnati said it would hear the group’s appeal which is a challenge to the December decision from Bankruptcy Judge Steven Rhodes who ruled Detroit was authorized to pursue its landmark bankruptcy case.
For the time being, the 6th Circuit is not expediting the appeal.
“It’s definitely an encouraging development in the case. The 6th Circuit in its order said that the issues in the petition relevant to eligibility warranted direct appeal primarily because they are a matter of such public importance,” says Ryan Plecha, an attorney representing retired city workers including police and fire.
Plecha says there is no timeline for the appeal process set. He and other attorneys representing city employees will continue mediation talks with the city while their appeal of the bankruptcy. “Uncertainty remains as to what the ultimate decision or ruling will be,” he says. ‘This is a very promising event.”
Here is the pensioners’ petition for permission to appeal: