Thread: Detroit To Default Today, "Shared-Sacrifice" To Follow

Detroit To Default Today, "Shared-Sacrifice" To Follow

Submitted by Tyler Durden on 06/14/2013 11:58 -0400

And so the next casualty of the inevitable municipal collapse appears, which is, as expected, that one-time symbol of all that was right with a (once upon a time) manufacturing America, having since been replaced with the anti-symbol of all that is broken:Detroit.

• DETROIT BEGINS MORATORIUM ON ALL DEBT SERVICE PAYMENTS FOR UNSECURED FUNDED DEBT
• DETROIT TO DEFAULT ON CERTIFICATES OF PARTICIPATION DUE TODAY

And, true to from in the New Normal America, where the "fairness doctrine" rules supreme under Big Brother's watchful eye, the premise of the upcoming glorious recovery is a well-known one: "the shared-sacrifice." To wit: "The City currently faces approximately $17 billion in total liabilities. Detroit is insolvent and cannot meet its financial obligations without a significant restructuring. Mr. Orr's plan provides for shared sacrifice among all creditor groups – from Wall Street and Main Street consistent with their legal rights – in order to return Detroit to a sustainable financial foundation and to permit much-needed reinvestment in the City." The punchline: "Detroit's road to recovery begins today"... By defaulting.

Full release:

Emergency Manager Presents Plan to Secure a Viable, Strong Detroit

Focus is to Improve Delivery of Basic Services to 700,000 Detroit Residents

Detroit will Honor Pay, Medical and Vacation Obligations to Current Employees

Plan Provides for Shared Sacrifice Among All Creditor Groups to Return Detroit to Sustainable Financial Foundation and Permit Reinvestment in City Negotiations Starting Now - Emergency Manager and His Advisers Are Moving Forward with Discipline, Speed and Efficiency of a Corporate Restructuring

Kevyn Orr, the Emergency Manager for the City of Detroit, today presented to the City's creditors a plan that outlines the required steps to secure a viable, strong Detroit. The focus of the proposal is to ensure that the City improves the delivery of basic services -- fire and police protection, functioning street lights, regular and reliable garbage collection, blight removal and enhanced emergency medical services -- to the 700,000 people who live in Detroit.

The City currently faces approximately $17 billion in total liabilities. Detroit is insolvent and cannot meet its financial obligations without a significant restructuring. Mr. Orr's plan provides for shared sacrifice among all creditor groups – from Wall Street and Main Street consistent with their legal rights – in order to return Detroit to a sustainable financial foundation and to permit much-needed reinvestment in the City.

"Detroit's road to recovery begins today," said Mr. Orr. "Financial mismanagement, a shrinking population, a dwindling tax base and other actors over the past 45 years have brought Detroit to the brink of financial and operational ruin. We cannot repeat the mistakes of the past -- the City, its region and the country deserve better. Our plan is bold because aggressive action is required to get Detroit back on its feet and improve the quality of life for the people who call Detroit home.

"Today is a new day and we have presented a plan that outlines a comprehensive roadmap for ensuring basic services are delivered to our citizens while aligning our obligations with the reality the City confronts. My team and I hope Detroit's creditors and constituents recognize that compromise and shared sacrifice are required for a better, more sustainable future for Detroit and its citizens."

As part of its plan, Detroit is in the beginning of a moratorium on all debt service payments for unsecured funded debt, which will begin with the next payment to holders of Certificates of Participation due June 14, 2013. The City has made this decision in order to conserve cash so that it can continue to provide essential services to its citizens. Detroit also will continue to honor its pay, medical and vacation obligations to its current employees and maintain its current vendor contracts for essential goods and services.

Mr. Orr and his advisers have started discussing the plan with Detroit's creditors, and they will move forward with the discipline, speed and efficiency of a corporate restructuring. They are committed to negotiating in good faith with all constituent groups to pursue consensual agreements. The team also is focused on pursuing a restructuring that protects and promotes the long-term viability of Detroit and the basic well-being of its citizens.

Mr. Orr and his advisers will work to maximize recoveries for creditors within the City's means, while providing pension and health insurance benefits that are reasonable and fair. These changes will allow essential reinvestment in the City to improve the lives of its citizens for decades to come.

The plan presented today can be accessed in the Emergency Manager section of Detroit's website at http://www.detroitmi.gov/. It identifies the sacrifices the City is seeking to ensure its future viability. The plan proposes the following with respect to certain creditor groups:

• The Emergency Manager is proposing to treat the City's obligations of similar priority in roughly the same manner so as to provide relative equality of treatment as the Emergency Manager addresses the City's staggering legacy liabilities.
• Holders of secured debt will receive treatment commensurate with the value of their collateral. The City's largest secured bond debt would be restructured with new bonds that respect the valid security interests of the bondholders, or otherwise as agreed by the parties.
• The City's unsecured bonds and other unsecured obligations (including unsecured General Obligation bond debt, pension certificates, the pensions' underfunding claims and retiree healthcare claims) will receive their pro rata portion of $2 billion face amount nonrecourse participation notes, payable as the City's financial circumstances improve. Principal paydowns will occur at certain intervals and will be based upon the City's
  receipt of currently unbudgeted sums related to asset values and improved City revenues.
• The plan proposes to modify pension benefits consistent with available funding.
• The plan also proposes to modify retiree health insurance, with many retirees obtaining benefits from Medicare or the healthcare exchanges under the Patient Protection and Affordable Care Act.
• A follow-up meeting with the City's unions and retirees will be scheduled in the near term to explain the details of revised pension and healthcare benefits.

Mr. Orr and his advisers also want to make sure that the restructuring achieved by Detroit is sustainable and leads to a permanent revitalization of the City. Many of the planned revitalization efforts will take years to complete. In exchange for the painful sacrifices from creditors, Mr. Orr and his team will insist that structures are put in place to ensure that the restructuring initiatives are continued and that fundamental changes are not undermined. Toward this end, the Emergency Manager expects to adopt oversight structures that have been used successfully in other cities, including New York City, to ensure that reforms are sustainable and long-lasting.

"The City and its creditors and constituents will have worked too hard and sacrificed too much for the gains of the restructuring to go for naught," said Mr. Orr. "We will need an oversight structure to ensure that the tough decisions and the compromises we make today are sustainable and allow Detroit to become a vibrant and growing American city once again. We look forward to our continued discussions with the City's creditors and to a brighter future for Detroit and all of its citizens."

Miller Buckfire & Co., Jones Day, Ernst & Young LLP and Conway MacKenzie Inc. are advising the City of Detroit in its restructuring.


http://www.zerohedge.com/news/2013-0...-default-today

Detroit defaults on some debt to avoid bankruptcy filing


Detroit's emergency financial manager Kevyn Orr talks to members of the media outside the Detroit Newspapers building about the report he delivered to the State of Michigan about Detroit's finances, in Detroit, Michigan May 13, 2013.
Credit: Reuters/Rebecca Cook




MuniLand: From Motown to Broketown, Detroit's despair (10:1


By Bernie Woodall and Steve Neavling
Fri Jun 14, 2013 6:43pm EDT

DETROIT (Reuters) - Detroit said on Friday it would stop making payments on some of its about $18.5 billion debt, which would put it in default, and the "insolvent" city called on most of its creditors to accept pennies on the dollar to help it avoid the largest municipal bankruptcy filing in U.S. history.
In a forceful opening salvo of negotiations with debt holders, Detroit Emergency Manager Kevyn Orr announced a moratorium on some principal and interest payments, including one payment he said was due on Friday.
Under his proposal, Orr said unsecured debt holders would be paid less than 10 cents on the dollar, but some creditors would get a bit more based on city revenue. Some $11.5 billion of the debt is unsecured and $7 billion secured, according to figures presented by Orr.
Orr said secured creditors would get better treatment, although how much better was not specified.
"We may try to get a discount from them, but the reality is they are secured," Orr said.
Secured credit means an asset is pledged to back the debt. For example, Detroit has secured its interest rate swap agreements with casino revenue.
He said the city would skip a $34 million payment due on Friday on $1.43 billion of pension certificates of participation, to allow the city to conserve cash needed to provide services to residents.
Fitch Ratings and Standard and Poor's Ratings Services immediately downgraded Detroit's rating to a level reserved for borrowers about to default.
"We expect default to be a virtual certainty," S&P said in a statement accompanying its downgrade to CC from CCC-negative.
A trustee for the bond issue will have to certify that Detroit failed to make the payment on Friday, which would trigger a formal default.
Detroit's crisis is being closely watched by U.S. debt markets. It did not immediately affect the $3.7 trillion U.S. municipal bond market, where prices ended higher on Friday.
Orr said he would meet with creditors over the next 30 days. Market participants said the outcome of those talks could lead to higher interest rates for the state of Michigan and even the broader market if Orr wins concessions from secured creditors.
"Financial mismanagement, a shrinking population, a dwindling tax base and other factors over the past 45 years have brought Detroit to the brink of financial and operational ruin," Orr said in a statement.
Orr said the city was "insolvent," unable to pay its debts and needed shared sacrifices from everyone, including debt holders, to have any hope of a revival.
Insolvency and inability to pay debts are two tests a government must meet for a judge to accept a Chapter 9 municipal bankruptcy.
"It looks and feels like a pre-packaged bankruptcy plan," said Richard Ciccarone, managing director at McDonnell Investment Management, in reaction to the proposal.
A pre-packaged bankruptcy is when an entity negotiates a deal with creditors and other interested parties in advance and presents that to a bankruptcy court judge.
Orr, a bankruptcy attorney brought in by the state of Michigan to clean up the city's finances, repeated after the meeting that he sees a 50/50 chance of a bankruptcy filing.
It would be a first for a major U.S. city as New York, Philadelphia and Cleveland all avoided formal bankruptcy filings during their financial difficulties.
New York also declared a moratorium on some debt payments in the 1970s, but creditors were ultimately paid in full under a restructuring agreement, said Jim Spiotto, a municipal bankruptcy expert at law firm Chapman and Cutler in Chicago.
In addition to the financial details, the 134-page document presented on Friday describes collapsing city services, rising crime and falling tax receipts.
Detroit is the poorest large city in the United States, with more than a third of its residents living below the official government poverty line, while its population has shrunk to about 700,000 people.
The city has the highest violent crime rate of any major U.S. city, some 78,000 abandoned and blighted structures and 40 percent of street lights dark, the document said. Only about a third of the city's ambulances were in service in the first quarter of 2013. Just 53 percent of owners paid their 2011 property taxes.
The document disclosed that Detroit could face unfunded pension liabilities, such as for retired police and fire workers, of $3.5 billion, up from the $644 million previously estimated.
Orr said unsecured creditors, including bondholders and pension funds, will receive a pro rata share of $2 billion of notes the city would issue and pay off as its financial circumstances improve.
An oversight board could be created for Detroit, similar to one set up after New York City's financial difficulties in 1970s that would ensure reforms are sustained, Orr said. The New York board created in 1975 still exists, although it is largely symbolic.
City workers and retirees would also face changes to their pensions and health care coverage "consistent with available funding."
At the same time, Orr proposed investing $1.25 billion over the next 10 years to improve the city's infrastructure, remove or repair crumbling houses and update computer systems.
Initial reaction from debt holders and labor unions was negative.
Emerging from the meeting, one bond holder who asked not to be identified, said of Orr's proposal to pay them only pennies on the dollar: "It's just too much. It is an unprecedented amount to ask."
In the past, bondholders have not lost the principal amount owed them as a result of the financial restructuring of major cities such as New York and Cleveland.
Much of Detroit's debt is insured, giving bondholders protection against defaults. Two of the insurers, National Public Finance Guarantee Corp, a unit of MBIA and Assured Guaranty Ltd, confirmed they attended the meeting.
"In the event that debt service payments by the City of Detroit are interrupted, National will ensure that its policyholders receive all of their principal and interest payments on time and in full," spokesman Kevin Brown said.
Leaders of some of Detroit's 48 public sector unions were upset by Orr's proposals, which included spinning off water and sewer services into an independent authority, as well as making the changes to pensions and health care coverage.
"When you're backed into a corner, the only thing you can do is fight and the only way we can fight is to strike," said Mike Mulholland, secretary and treasurer of AFSCME Local 207, the union that represents water and sewer workers.

http://www.reuters.com/article/2013/06/14/us-usa-detroit-creditors-idUSBRE95D0OS20130614

Emergency manager: Detroit won't pay $2.5B it owes

June 15, 2013
Source: Ap

A team led by a state-appointed emergency manager said Friday that Detroit is defaulting on about $2.5 billion in unsecured debt and is asking creditors to take about 10 cents on the dollar of what the city owes them.

Kevyn Orr spent two hours with about 180 bond insurers, pension trustees, union representatives and other creditors in a move to avoid what bankruptcy experts have said would be the largest municipal bankruptcy in U.S. history.

Underfunded pension claims likely would get less than the 10 cents on the dollar.

An assessment of the plan's progress will come in the next 30 days or so.

Orr also announced that Detroit stopped paying on its unsecured debt Friday to "conserve cash" for police, fire and other services in the city of 700,000 people. The debt not being paid includes $39 million owed to a certificate of participation.

Read More...


http://www.blacklistednews.com/Emerg...38/38/Y/M.html