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| Detroit submits plan to fix debt as US court agrees to hear bankruptcy case | Detroit submits plan to fix debt as US court agrees to hear bankruptcy case |
| (35 minutes later) | |
| Detroit’s historic bankruptcy filing was challenged Friday as the US sixth circuit court of appeals agreed to hear a request to have it overturned. | Detroit’s historic bankruptcy filing was challenged Friday as the US sixth circuit court of appeals agreed to hear a request to have it overturned. |
| City pension funds representing Detroit’s police and firefighters and others who face major losses in the bankruptcy proceedings go through won a hearing that could mark the case’s first step on the way to the US Supreme Court. | City pension funds representing Detroit’s police and firefighters and others who face major losses in the bankruptcy proceedings go through won a hearing that could mark the case’s first step on the way to the US Supreme Court. |
| Detroit’s bankruptcy, announced last December, will proceed while the appeal is being heard, which will not take place on an expedited basis. | Detroit’s bankruptcy, announced last December, will proceed while the appeal is being heard, which will not take place on an expedited basis. |
| The news comes as Detroit’s city workers, pensioners, investors and art lovers were on tenterhooks Friday as the city prepared to set out plans to emerge from its historic bankruptcy. Detroit’s emergency manager, Kevyn Orr, filed a plan in bankruptcy court on Friday to restructure the city’s debt. | The news comes as Detroit’s city workers, pensioners, investors and art lovers were on tenterhooks Friday as the city prepared to set out plans to emerge from its historic bankruptcy. Detroit’s emergency manager, Kevyn Orr, filed a plan in bankruptcy court on Friday to restructure the city’s debt. |
| Saddled with a disputed $18bn in debt, Detroit is the largest city to file for bankruptcy in US history. It’s plans to tackle those debts will be watched closely by other troubled municipalities across the US. | Saddled with a disputed $18bn in debt, Detroit is the largest city to file for bankruptcy in US history. It’s plans to tackle those debts will be watched closely by other troubled municipalities across the US. |
| An early draft of state-appointed emergency manager Kevyn Orr’s plan, released Friday, called for city pensioners to receive $4.3bn in payments and bondholders about $1.1bn 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 (DIA). | An early draft of state-appointed emergency manager Kevyn Orr’s plan, released Friday, called for city pensioners to receive $4.3bn in payments and bondholders about $1.1bn 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 (DIA). |
| “The city believes that the plan gives the city the best chance of effectively adjusting its debts and reestablishing itself as a prosperous and productive American city. All creditors entitled to vote are encouraged to vote in favor of the plan,” the document said. It was filed in US bankruptcy court in Detroit. | “The city believes that the plan gives the city the best chance of effectively adjusting its debts and reestablishing itself as a prosperous and productive American city. All creditors entitled to vote are encouraged to vote in favor of the plan,” the document said. It was filed in US bankruptcy court in Detroit. |
| Donald Smith, a 68-year-old retiree who spent his life working for the city – at a hospital, guarding pictures at the Detroit Institute of Art, and later as a detention officer– said any cuts to his pension would be “a death sentence”. | |
| “I have $885 a month to live on, and I can’t live on that. What am I supposed to do? I already have to choose between eating and paying for medicine,” he said. “Michigan’s constitution was supposed to protect pensions. Now they are saying Wall Street is more important. They are throwing me away like an old coat.” | |
| The plan to tackle Detroit’s debts, called a plan of adjustment, is subject to the approval of the bankruptcy judge, Steven Rhodes, who must decide whether it is fair and equitable. | The plan to tackle Detroit’s debts, called a plan of adjustment, is subject to the approval of the bankruptcy judge, Steven Rhodes, who must decide whether it is fair and equitable. |
| The plan will also set out a schedule for tackling some of Detroit’s chronic structural and social issues. Half the city’s street lights are broken, there are at least 70,000 abandoned houses, and the murder rate at a 40-year high. The draft included the possible spinoff of the city’s water and sewerage department to a regional authority. The city would receive $47m annually under a lease deal. | The plan will also set out a schedule for tackling some of Detroit’s chronic structural and social issues. Half the city’s street lights are broken, there are at least 70,000 abandoned houses, and the murder rate at a 40-year high. The draft included the possible spinoff of the city’s water and sewerage department to a regional authority. The city would receive $47m annually under a lease deal. |
| One of the most contentious areas is the fate of the healthcare and pension benefits of Detroit’s 30,000 city workers past and present. The affected workers are owed about $3.5bn in pension payments, and another $6bn in healthcare benefits. One proposal floated ahead of the bankruptcy would have cut the average Detroit pension from $19,000 a year to $3,040. | One of the most contentious areas is the fate of the healthcare and pension benefits of Detroit’s 30,000 city workers past and present. The affected workers are owed about $3.5bn in pension payments, and another $6bn in healthcare benefits. One proposal floated ahead of the bankruptcy would have cut the average Detroit pension from $19,000 a year to $3,040. |
| Orr, Detroit’s state appointed emergency financial manager, has made clear he believes no deal can be done without cuts to benefits. In court hearings, Rhodes said he would not necessarily approve any plan with steep cuts. | Orr, Detroit’s state appointed emergency financial manager, has made clear he believes no deal can be done without cuts to benefits. In court hearings, Rhodes said he would not necessarily approve any plan with steep cuts. |
| On the other side are the city’s 100,000 creditors including financial giants Bank of America and UBS. How Rhodes rules on their investments will have a profound impact on the $3.7tn municipal bond market that finances large swathes of daily life in the US and where the safety of general obligation bonds has long been considered sacrosanct. | On the other side are the city’s 100,000 creditors including financial giants Bank of America and UBS. How Rhodes rules on their investments will have a profound impact on the $3.7tn municipal bond market that finances large swathes of daily life in the US and where the safety of general obligation bonds has long been considered sacrosanct. |
| Hedge fund manager David Tawil of Maglan Capital in New York, and a former student of Rhodes, said the judge faced a tough decision but was likely to force a compromise. | Hedge fund manager David Tawil of Maglan Capital in New York, and a former student of Rhodes, said the judge faced a tough decision but was likely to force a compromise. |
| “Rhodes has been mindful in other cases about the personal ramifications of large bankruptcies. On the other hand he can’t entirely ignore the bondholder,” he said. | “Rhodes has been mindful in other cases about the personal ramifications of large bankruptcies. On the other hand he can’t entirely ignore the bondholder,” he said. |
| The case has been further complicated by a deal to save DIA. In a first-of-its-kind arrangement, philanthropic foundations including the Ford Foundation and the Kresge Foundation, have committed $330m to shore up retirees’ pensions in return for a promise to leave the DIA’s world class art collection intact. | The case has been further complicated by a deal to save DIA. In a first-of-its-kind arrangement, philanthropic foundations including the Ford Foundation and the Kresge Foundation, have committed $330m to shore up retirees’ pensions in return for a promise to leave the DIA’s world class art collection intact. |
| Legally, Tawil said the offer was open to challenge because bankruptcy must treat each class of creditors equally. But he said Rhodes was likely to make the case that the DIA offer was the best available and force a compromise. | Legally, Tawil said the offer was open to challenge because bankruptcy must treat each class of creditors equally. But he said Rhodes was likely to make the case that the DIA offer was the best available and force a compromise. |
| “If they don’t make a deal and Rhodes is pushed to rule, he’ll ruls and someone will be a major winner and someone will be a major loser. It doesn’t behove anyone to go to the end on this one,” he said. | “If they don’t make a deal and Rhodes is pushed to rule, he’ll ruls and someone will be a major winner and someone will be a major loser. It doesn’t behove anyone to go to the end on this one,” he said. |
| The Associated Press contributed to this report | The Associated Press contributed to this report |