$85 million to be paid of $288 million currently owed. That’s the latest agreement (posted below) reached between attorneys for the city of Detroit and two investment banks over the interest rate swaps debt related to the city’s pensions funds.
Bankruptcy Judge Steven Rhodes in the last few months has twice rejected agreements of $230 million and $165 million, sending attorneys back to the mediation room. They emerged on Monday, proverbially, and the city filed a motion asking that Rhodes approve the latest arrangement with UBS AG and Bank of America Merrill Lynch. The deal also includes the banks forgoing casino tax revenues that the city had pledged as collateral in 2009 to avoid defaulting on pension debt payments.
The $85 million is not quite 30 cents on the dollar of the current $288 million obligation.
With Detroit’s debt reportedly totaling $18 billion, the city has millions of dollars in debt restructuring remaining to resolve. But the UBS-Bank of America deal is significant. First, it frees up for the city about $15 million in monthly casino taxes that had been tied to the pension interest swap deal. Second, it sets a benchmark for other negotiations — and eventual settlements — with the city’s other 100,000-plus creditors.
Here’s a roundup of news stories about the deal:
Detroit Free Press: Detroit reaches deal…millions saved by taxpayers
Detroit News: New debt deal could save Detroit $201 million
The Detroit Free Press had a slew of stories over the weekend related to the city’s bankruptcy. Here’s the most essential reading:
It’s been widely reported that Detroit’s bankruptcy has highlighted flaws in its pension financing and administration, and that’s drawn attention to how public worker pension systems operate. In a look at proposed reforms, their promises and their drawbacks, John Gallagher writes:
Some maintain government pension funds will stay healthy as long as the stock market remains high. Others believe America faces a genuine crisis in which millions of retired teachers, cops, clerks and other government pensioners face cuts to their monthly checks. Just last week, the nonprofit Society of Actuaries released a report by a panel of experts that said the total amount of unfunded liabilities in public pension plans in the U.S. amounts to nearly $1 trillion. Other experts peg the underfunding at three or four times that.
Kevyn Orr spoke with Detroit Free Press writers, telling them he’s frustrated the city’s pensioners haven’t accepted his plan that cuts 26 percent from retired general workers’ payments and 10 percent from police and fire retirees.
The offer is fair, he said, and delaying could jeopardize creation of an $815-million rescue fund meant to boost pensions and protect Detroit Institute of Arts masterpieces from being auctioned to pay off creditors.
Meanwhile, as debate continues about whether (or how) gains made in the downtown and Midtown areas could spread to neighborhoods, the new hockey arena complex is moving ahead with $261 million in public funds. Editorial Page Editor Stephen Henderson weighs in and explains how the structure and management of the arena deal contradicts much of the broader discussion about the city’s future:
Detroit is lost, it seems, when it comes to translating big wins in the city’s core into benefits for most of the people who live here, and we need both city and state government to step it up when it comes to balancing the swell of good fortune that’s overtaking parts of the city.
Under terms of the new stadium deal, Detroit loses the $7 million the team pays the city from percentages of ticket and suite sales, food and beverage concessions, souvenir sales and parking. The deal is raising other questions, the Free Press reports:
Publicly and privately, some residents and elected officials have questioned whether negotiators should have gotten more in the deal for state taxpayers — who are footing much of the construction costs — as well as more financial sweeteners for the City of Detroit, even though its contribution was limited to land for the arena site.
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:
In his Michigan Radio segment, Jack Lessenberry asks:
The city may be shorn of debt, but how will it run basic operations and stay solvent? …Where will the resources come from to give it a shot at prosperity?
New Michigan Media representatives visited the WDET studio to discuss how bankruptcy is affecting their communities and what they’ll be reporting on as part of the Detroit Journalism Cooperative. Executive Director of New Michigan Media Hayg Oshagan is in studio with Publisher of Arab American News Osama Siblani and Publisher of Michigan Citizen Catherine Kelly.
The media room at the Theodore Levin U.S. Courthouse in Detroit was crowded Wednesday as Bankruptcy Judge Steven Rhodes heard arguments about whether the city may treat its unlimited-tax, general obligation bonds as unsecured during the bankruptcy process. At issues is hundreds of millions of dollars the city could use for services for residents instead of paying interest to bond financiers, to put it simply. But wiping away the debt, if that occurs, would send shockwaves through the $4 trillion municipal bond market.
During the nearly six hours of testimony, six attorneys for the bond insurers argued Michigan law dictates that funds raised from voter-approved bonds should be considered something of a “lien” and used only to pay off debt service for the bonds. Detroit’s attorneys, from the Jones Day law firm, argued federal bankruptcy law prescribes the funds are unsecured and that the bond issuers are like any other creditor.
Judge Rhodes, who said he would have a decision within two or three weeks, ended the day by urging continued mediation. “A decision here is most likely all or nothing,” he said. “One side is going to win and the other side is going to lose.”
Before the hearing, city attorneys told Judge Rhodes they had reached a deal with two global banks UBS and Bank of America Merrill Lynch for a “swaps settlement” on debt from pension funding. Rhodes has twice rejected previous deals, calling them too generous for the banks. City attorneys said they submit details to the court within three or four days.
The Detroit Free Press’s Nathan Bomey published this article, which is a comprehensive update of where bankruptcy dealings are to date.
And here are various other articles and stories published and broadcast about the day in court.
From The Bond Buyer: Detroit judge hears challenge to ULTGO treatment
From The Detroit News: Judge expects to rule on bondholder payments in a few weeks, urges negotiations
(WDET’s Craig Fahle spoke with Next Chapter Detroit’s Sandra Svoboda about the case on his show Feb. 20)
Attorney Caroline English today, representing Ambac Asssurance Corp., one of Detroit’s bond insurers, cited an 1888 case to bolster her argument that her client — and others — have a claim to funds raised through voter-approved measures.
That’s right, a 126-year-old case.
So during a break in the hearing, Next Chapter Detroit visited the library at the Theodore Levin U.S. Courthouse and found the case.
Titled “Moses Taggart, Attorney General, v. The City of Detroit,” the case involved ensuring the city used the taxes levied to pay for a public market for that purpose. Kind of like what the bond insurers are arguing: that the city should pay off general obligation bonds with taxes collected for that purpose.
Judge Steven Rhodes is considering the arguments.
-By WDET’s Sandra Svoboda @WDETSandra and email@example.com