Sound The Trumpet : Detroit Bankruptcy to Set Off Pitched Battles With Creditors, Pensions, Unionsd

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“Detroit Bankruptcy to Set Off Pitched Battles With Creditors, Pensions, Unionsd”
by Detroit Free Press
July 20th, 2013

Detroit on Thursday became the largest American city to file for bankruptcy, a historic move sure to ignite complex battles in coming months with creditors, pensioners and unions who stand to lose significantly as the state tries to rescue a city whose failure Gov. Rick Snyder said was 60 years in the making.

Bankruptcy and restructuring experts said the filing will initiate a new round of battles in federal court, potentially setting national precedents on matters ranging from whether bondholders get repaid when cities run out of money to whether public pensions, previously thought to be sacrosanct under the Michigan Constitution, are protected in municipal bankruptcies.

Financially troubled cities around the nation will be watching what happens in the Motor City for lessons that could apply to them.

In the end, state-appointed emergency manager Kevyn Orr’s attempt to reach out-of-court settlements could not overcome opposition from unions, retirees and a long list of lenders to whom the city owes as much as $20 billion.

“There’s some real benchmark laws that could be set here,” said Jim McTevia, a leading turnaround management expert in Bingham Farms. “There are going to be a number of issues that a normal bankruptcy doesn’t cover.”

Orr filed a Chapter 9 bankruptcy petition Thursday in U.S. Bankruptcy Court for the Eastern District of Michigan that is the largest of its kind in terms of population and the size of the debts and liabilities involved. Bankruptcy experts said the outcome is sure to have sweeping impact on how other troubled cities around the country resolve financial difficulties. But Snyder said the size of debt involved mattered less to him than the city’s inability to provide services to its 700,000 residents.

Snyder, who approved the filing, called the move “a last resort to return this great city to financial and civil health for its residents and taxpayers.”

“I know many will see this as a low point in the city’s history,” Snyder said in his order authorizing the filing. “If so, I think it will also be the foundation of the city’s future — a statement I cannot make in confidence absent giving the city a chance for a fresh start, without burdens of debt it cannot hope to fully pay.

“This was a difficult decision,” Snyder said, “but it’s clearly the right decision because there are no other viable options.”

Bing: ‘Difficult for all’

Mayor Dave Bing, who called it a difficult day, said Orr called him in the afternoon to tell him about the filing.

“One of the things that I want to say to our citizens is that as tough as this is, I really didn’t want to go in this direction,” Bing said. “But now that we are here, we have to make the best of it. I think Kevyn and the team that he brought together has a lot of history of succeeding. This is very difficult for all of us, but if it’s going to make services better off, then this is a new start for us.”

Orr, who appeared with Bing at an evening news conference, said he hopes to get through the bankruptcy process by late summer or fall of next year. He did not answer questions about what impact he expects bankruptcy to have on thousands of city retirees or creditors of the city, saying those talks are ongoing. Orr said he believes the city has been negotiating in good faith.

“We don’t have time for more delaying tactics, more litigation, business as usual,” he said. “We’ve been saying that again and again and again. Everybody knows I have an 18-month term, and I have 15 months left in it. So, we’re going to start. And we’re going to give the level of services that the city needs.”

Looking for His glorious appearing! Titus 2:13