Thread: Detroit files plan to restructure debt, leave bankruptcy

Detroit files plan to restructure debt, leave bankruptcy

Published February 21, 2014Associated Press

Detroit's emergency manager filed a plan Friday to restructure the city's $18 billion debt by making cuts to pensions and creditors while offering a blueprint for emerging from the largest municipal bankruptcy in U.S. history.

An early draft of state-appointed Emergency Manager Kevyn Orr's plan called for city pensioners to receive $4.3 billion in payments and bondholders about $1.1 billion during the next 40 years. That draft also detailed plans to help pensioners keep more of what they are owed by using state and private funds to protect against the sale of city-owned art at the Detroit Institute of Arts.

"My advisers and I have now expended many months in negotiations, including within Bankruptcy Court-mandated mediations, with all classes of creditors to get to this point, and we are satisfied with the progress made thus far," Orr said in a statement. "However, there is still much work in front of all of us to continue the recovery from a decades-long downward spiral. We must move swiftly to emerge from bankruptcy so that the financial distress harming the City can end.

"We maintain that the Plan provides the best path forward for all parties to resolve their respective issues and for Detroit to become once again a city in which people want to invest, live and work."

The plan still faces numerous obstacles. Most aspects are still being negotiated in mediation sessions with stakeholders. Court appeals are all but certain even after the final version is approved in bankruptcy court.

The early draft included the possible spinoff of the city's Water and Sewerage Department to a regional authority. The city would receive $47 million annually under a lease deal.

Orr included in his early draft a promise of millions of dollars from foundations, the state and the Detroit Institute of Arts to prevent any possible sale of city-owned pieces in the museum to bolster at-risk pensions.

The city also would establish a voluntary employees' beneficiary association that would provide health care benefits to retirees.

The plan was accompanied by a disclosure statement, which outlined the level of reinvestment, including municipal services, planned during the next 10 years.

Orr had hoped creditors would sign off on the plan before he submitted it to U.S. Bankruptcy Judge Steven Rhodes. But the clock was ticking because Rhodes had set a March 1 deadline. Nevertheless, with negotiations ongoing, changes are expected.

Orr has said the city's debt is at least $18 billion. About $6 billion is Detroit Water and Sewerage Department debt, which is secured by water bill payments. An additional $12 billion is unsecured, meaning it's not covered by a revenue stream. That includes about $2 billion in general obligation bond debt, $5.7 billion in unfunded retire health care obligations and $3.5 billion in unfunded pension liabilities.

Pension officials have disputed that figure.

http://www.foxnews.com/politics/2014...ve-bankruptcy/

UPDATE 2-Detroit, counties reach deal over water, sewer authority

Tue Sep 9, 2014 3:11pm EDT
By Lisa Lambert

(Reuters) - Detroit reached a deal with three Michigan counties over regional water and sewer services that could erase one roadblock to federal court approval of the city's plan to adjust its debt and exit bankruptcy, officials announced on Tuesday.

The deal with Oakland, Wayne and Macomb counties creates a regional water and sewer authority, but allows Detroit to maintain control of its local system, Mayor Mike Duggan said at a news conference. It has the support of Michigan Governor Rick Snyder and the city's state-appointed emergency manager Kevyn Orr, he added.

"There has been 40 years of conflict between the city and the suburbs over the Detroit water and sewer system and what you have today is a pretty remarkable accomplishment," Duggan said.

The future of Detroit's Water and Sewerage Department has been a big hole in the city's plan to adjust $18 billion of debt and exit the biggest-ever municipal bankruptcy. U.S. Bankruptcy Judge Steven Rhodes, who is overseeing the case, had pushed the city and counties into mediation, hoping for a resolution that would include a regional authority.

When no agreement was reached, Detroit proposed draining $428 million over nine years from the water and sewerage department to cover "catch up" pension payments owed by the department to the city's general retirement system and other fees -- a move opposed by the counties.

A memorandum of understanding signed by top city and county officials on Tuesday would create the so-called Great Lakes Water Authority, which would give the three counties more direct control over water and sewer services for their residents.

The water system covers 1,079 square miles and serves about 40 percent of Michigan's residents, while the sewer system covers 946 square miles.

The new water authority would make a one-time lump-sum pension payment, funded possibly through a bond sale, in a yet-to-be-determined amount that would represent the net present value of the $386 million owed, according to Bob Daddow, Oakland County's deputy chief executive.

Following the deal's announcement, attorneys for Wayne and Oakland counties told Rhodes they were withdrawing objections to Detroit's debt adjustment plan, but a dispute over who signed the memorandum prohibited Macomb County from following suit.

Duggan said that the city and county governing bodies have until Oct. 10 to ratify the deal, which would take effect with the approval of the city and at least one of the three counties. Then, the new authority would have to be "up and running" in 200 days.

Judge Rhodes is currently holding the second week of a plan confirmation hearing, which is expected to stretch into the middle of October.

Oakland County Executive L. Brooks Patterson told the quickly assembled press conference on Tuesday that the hearing had become a "Sword of Damocles" hanging over the heads of parties in mediation. If Rhodes deems the plan is fair and feasible, he can impose its terms on objecting creditors in what is known as a "cram down."

Both Patterson and Duggan said they were concerned that would lead to privatizing water and sewer services.

Duggan told reporters after the press conference that he believes Rhodes - who met with county attorneys during the hearing's lunch recess - will support the settlement, but he would not say if it would help speed up the trial or have an impact on Syncora Guarantee Inc, one of the remaining major objectors to Detroit's debt adjustment plan.

Syncora and another bond insurer Financial Guaranty Insurance Co, which both guaranteed payments on $1.4 billion of Detroit pension debt, have claimed the city is proposing to pay them far less than other creditors.

DEAL FOR NEW AUTHORITY HAS 40-YEAR LEASE

Under the deal, the new water authority would have a 40-year lease for the water and sewer systems, paying Detroit $50 million a year.

That money would be used by the city to back up to $800 million of bonds to rebuild the water and sewer system, Duggan said.

"We are going to go through the city and rebuild our water system the way it should have been rebuilt years ago," Duggan said.

The regional partnership on water and sewer would create a $4.5 million water affordability program to help customers who cannot pay their bills and would cap annual rate increases at 4 percent over the next decade.

Detroit cut off water to thousands of residents this summer in an effort to collect on $90 million in unpaid bills, fueling national outrage that the city's poorest people went days without access to fresh water.

The city imposed a month-long moratorium on the shut-offs, and activists then requested Rhodes issue a temporary restraining when the suspension ended. The judge has said he will announce on Sept. 17 his decision on the order and those in the class action are currently in mediation with the city . (Additional reporting by Karen Pierog in Chicago; editing by Chizu Nomiyama and Matthew Lewis)

http://www.reuters.com/article/2014/...0RA1LZ20140909

http://www.alipac.us/f19/judge-appro...ruptcy-314138/