Traverse City Record-Eagle

Business

February 21, 2014

Plan to restructure Detroit's debt expected today

DETROIT (AP) — The blueprint for Detroit’s restructuring in its historic bankruptcy is expected to be filed today, according to a spokesman for state-appointed emergency manager Kevyn Orr.

Orr’s long-awaited plan of adjustment will spell out how pensioners, retirees, banks, bond insurers and other creditors will be treated as his team reduces Detroit’s $18 billion debt load.

The plan will be filed today in federal court in Detroit, said Bill Nowling, Orr’s spokesman.

Bankruptcy Judge Steven Rhodes set a March 1 deadline for the filing. Orr had hoped to have the plan ready before January, but its release was delayed by ongoing negotiations with creditors.

A draft given last month to creditors showed retirees and pensioners getting $4.3 billion in payments and bondholders about $1.1 billion over the next 40 years, leaving the city with a nearly $336 million surplus.

How Detroit makes payments on municipal bonds and other city obligations should be changed under the plan, said bankruptcy attorney and St. John’s University law professor Anthony Sabino.

“No doubt debt shall be restructured, giving the city more time to repay,” he said. “A 90-day note may become a 180-day note.”

Orr filed for bankruptcy in July. In December, Rhodes made Detroit the largest U.S. city to enter bankruptcy.

Who will get what has been a major question throughout the process. Lawyers representing the city have been negotiating with various creditor groups.

Pensioners likely will be treated better than other unsecured creditors, according to Michael Leib, a Detroit-area bankruptcy litigation attorney with Maddin, Hauser, Roth & Heller.

One question is whether older pensioners are treated differently than younger ones, and whether those with higher pension payments are treated differently than those with lower payments, he added.

The plan will be accompanied by a disclosure statement, which outlines the level of reinvestment in Detroit, including municipal services, planned during the next 10 years.

“I think it is not sufficient just to get the city’s fiscal house in order,” said Bruce Katz, director of the metropolitan policy program for the Washington-based Brookings Institution. “If Detroit is to become a functioning city economically, the plan must address improved service delivery — including public safety — and expanded infrastructure investment.”

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