04.04.14

One More Lap. U.S. Bankruptcy Judge Steven Rhodes yesterday after nearly an 8-hour hearing announced he would issue his decision a week from today on the Motor City’s request to end costly interest-rate swap agreements, a key issue as the city seeks to exit bankruptcy later this year. Since filing for bankruptcy last July, Detroit Emergency Manager Kevyn Orr has sought to rid the city of the banks’ on $170 million in annual casino revenues, testifying yesterday that he “continue(s) to believe that resolving the swap agreement was in the best interest of the city,” as opposed to the cost of challenging the swap agreements in court: “It was significant. It could be millions of dollars a month.”

04.03.14

One More Lap.  U.S. Bankruptcy Judge Steven Rhodes yesterday approved Detroit’s revised, $120 million debtor-in-possession or DIP loan from Barclays, telling the courtroom the city “is not providing sufficient services to meet the basic needs of its citizens…This loan will provide the city with the means to begin to make up that deficit. The time to begin is now, if not before now…This court has previously held that the city is service-delivery insolvent.” The loan is to buy emergency vehicles and remediate blight in the city of about 700,000 people.

04.01.14

One More Lap.  Detroit Emergency Manager Kevyn Orr late yesterday proposed a 235-page revised plan of adjustment and a revised disclosure plan with the U.S. Bankruptcy Court that proposes steeper cuts to retirees unless they support a restructuring plan that includes money to shield the Detroit Institute of Arts from creditors. The plan revises how the Motor City is seeking to allocate its debts amongst its 170,000 creditors—and to preserve about $1.5 billion to invest in its future. In its filings, the Motor City made clear it expects to make further revisions in each of the documents—both hundreds of pages long—between now and Judge Steven Rhodes’ April 14^th hearing  when creditors expect to challenge the completeness of the respective documents.

03.28.14

Celebrate Chocolateville! Moody’s yesterday reported that Central Falls, R.I., also known by some of its citizens as Chocolateville—where we commenced this Center’s efforts to look at municipal fiscal distress two years ago, is reporting a $1.6 million surplus—less than two years after exiting municipal bankruptcy. Central Falls, only one square mile in size, filed for Chapter 9 bankruptcy protection on Aug. 1, 2011. Unsurprisingly, Moody’s terms its exit a credit positive. On the hot Spring day when we met at City Hall with Central Falls’ bankruptcy receiver, former Rhode Island Supreme Court Justice Robert Flanders, the small, former mill city was plagued with problems contributing to its insolvency: low civic engagement, a small tax base, and the departure of business. Its old industrial base was gone. It was unclear whether a community of one square mile could actually have a sufficient economic base to recover. The key to the Central Falls story included signs of financial distress—signs which had already become apparent in 1991— but, absent political will, had engendered no changes.

03.26.14

Getting to the Checkered Flag. Detroit Emergency Manager Kevyn Orr yesterday urged the city’s unions to reach an agreement on bankruptcy terms soon or risk the loss of millions in funding pledged toward pensions.Speaking at the University of Michigan, after a presentation jointly with Governor Rick Snyder in New York City Monday, Mr. Orr said he hopes to secure enough support “within the next couple of weeks” to achieve a consensual resolution to the Chapter 9 bankruptcy, but warned that time is running out.

03.24.14

Readying An Exit Strategy.The Motor City hopes to accelerate a process to solicit votes from some 32,000 of its retirees and beneficiaries on a blueprint for restructuring the city’s debt—a process in which U.S. Bankruptcy Judge Steven Rhodes has instructed the city’s attorneys, they must take great care to ensure the retirees have a very clear understanding about what impact such proposed cuts would have on their pensions and health care benefits, according to the Detroit News. Under the draft schedule, Detroit will send a ballot and copy of the city’s proposal to reduce its $18 billion debt to its retirees by the end of April—providing these retirees and other creditors until June 30^th to submit their votes.

02.26.14

No Delay on the Final Laps.  U.S. Bankruptcy Judge Steven Rhodes yesterday rejected requests to delay his proposed schedule for consideration of Detroit’s exit plan from municipal bankruptcy, noting his plan was designed to provide a “just, speedy, and inexpensive determination of this case,” and that the Motor City would run out of cash if it takes too long: “The problem with delay is the city will not have any more money to pay you if this is put off two or four or six months,” U.S. Bankruptcy Judge Steven Rhodes told attorney Carole Neville, who represents Detroit retirees. “(Detroit) is not a retail operation with a Christmas season coming.”

02.24.14

Getting Ready to Rumble.  U.S. Bankruptcy Judge Steven Rhodes this morning set an aggressive timeline between now and June 16^th—the day he has determined for the critical hearing on the city’s plan of adjustment, which, if approved, would permit the Motor City to exit municipal bankruptcy, advising all parties: “Nothing herein excuses any party from the continuing obligation to participate in good faith in any mediation…Further, the court again strongly encourages all parties to negotiate with full intensity and vigor with a view toward resolving their disputes regarding the treatment of claims in the city’s plan of adjustment.” Under the Judge’s schedule, creditors will have a deadline of March 28^th to file objections to the city’s plan of adjustment—and that date will mark the date upon which depositions on objections may begin—with the Judge determining the challenges would bisected into legal and factual objections—with a separate trial for each category.

02.24.14

Whatdawedonow?   With the Motor City filing of both the plan of adjustment—the nearly 440 page document which proposes how Detroit’s accumulated $18 billion in debts will be divvied up between its 100,000+ creditors, and its accompanying disclosure document that lays out Kevyn Orr’s plan for spending $1.5 billion over the next decade to improve essential public services, public safety, and eliminate blight; many are asking what the next chapter in this historic municipal bankruptcy is. For starters, it marks an unprecedented step into the unknown at a most critical time, best summed up by the incomparable Jim Spiotto, who notes: “Chapter 9 is a little like open-heart surgery…Much can be done to repair the patient. But if it all takes too long, it can be fatal.”

02.21.14

The Plan.  Detroit Emergency Manager Kevyn Orr today filed a proposed plan of adjustment and disclosure plan with the U.S. Bankruptcy Court that lays out how the Motor City proposes to allocate its $18 billion of debt amongst its 100,000+ creditors and provide for a sustainable future for the Motor City. (Note: please see the summary of the city’s plan below). The 120-page blueprint offers unsecured non-retiree creditors, including unlimited-tax GO holders, a roughly 20 percent recovery on their claims. The city would raise the funds to cover the claims through the issuance of new securities. The recovery rate could go up if the city brings in more revenue. The disclosure document lays out a 10-year plan of sustainability for the future through the revitalization of essential public services and public safety, proposing $1.5 billion be dedicated to capital improvements, blight removal, equipment, and technology upgrades, with up to $500 million utilized over the next five years.