‘We’re Tapped Out’: Detroit Emergency Manager Proposes Plan To Creditors

[WestVirginiaRebel]

CBS Detroit:

DETROIT (WWJ) – There’s still a 50-50 chance Detroit will file for bankruptcy.

That’s according to Detroit Emergency Manager Kevyn Orr, who has detailed a plan for the city’s financial future in a 134-page proposal to creditors.

Orr on Friday sat down in a closed-door meeting with about 150 creditors, bond holders and unions to discuss the city’s fiscal situation, seeking concessions that would save Detroit millions of dollars in payments.

Perhaps the most dramatic aspect of his plan: Orr said, starting now, there will be a moratorium on debt payments for all unsecured funded debt. Creditors are being asked to take about 10 cents on the dollar of what’s owed them. Underfunded pension claims would get less.

[VIEW THE PROPOSAL HERE]

This latest comes as Detroit continues to spend more money than it takes in as revenue. The city’s budget deficit could top $380 million by July 1, and Orr now estimates the city’s long-term debt at $20 billion.

“This is not a jaded effort just to get to a bankruptcy filing,” said Orr, addressing reporters following Friday’s meeting. ”I sincerely want people to behave rationally and take this opportunity to work together.”

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Yeah, good luck with that...

[Valin]

Detroits Last Hope to Avoid Bankruptcy

6/14/13

 

Detroit has been skirting bankruptcy for a while now, and today Emergency Manager Kevyn Orr met with the citys creditors to discuss plans to restructure the citys obligations. Creditors would have to take a hit on any such deal, but its stunning to see just how big it could be: The New York Times reports that proposals on the table would offer returns as low as ten cents on the dollar on more than $11 billion in liabilities and bonds. Unsurprisingly, Orrs office is reporting that creditors will need a few weeks to think things over.

 

At this point, city creditors can either take the deal or force the city into bankruptcy proceedings, because its obvious that Detroit cant pay back its debts, which amount to $25,000 per resident, according to the Detroit Free Press. It would be nearly impossible to plug a hole this large with spending cuts or tax hikes in a struggling city that has already slashed services to the bone and can scarcely afford to keep the lights on as it is. Mr. Orr is hoping that the citys penury and the threat of bankruptcy will be enough to convince creditors to cooperate, and he may well be rightno city this size has gone bankrupt before, and the effects on the bond markets could be enormous:

 

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At the same time, however, a deal that cuts payments by as much as 90 percent would be a hard bargain for creditors. Further, Bloomberg reported last week that creditors are extremely resistant to cuts to general-obligation bonds, which have been assumed to be protected from loss. The details of the plan are still not clear, but city officials are dropping hints that it may not be able to make payments on these bonds.

 

(Snip)

[Valin]

Detroit Rescue Plan to Gut City Pensions

6/16/13

 

City and state workers around the country think that their defined benefit pension programs are safe; after all, that’s what the politicians and union leaders keep telling them.

But to get a glimpse of what the future will look like for many people who think their retirement is assured, take a look at Detroit, where the city has unveiled a proposed solution to its debt problems that hits pensions hard.

 

(Snip)

 

Even if the city avoids bankruptcy, it appears that public employees and pensioners will still have a tough road ahead of them. As the Detroit Free Press reports, Orr’s remarks are only adding to that perception:

 

Orr said that the city’s debilitating debt, a product of decades of a deteriorating tax base and generous promises to pensioners, is simply no longer sustainable. Orr said Friday that the city’s 700,000 residents deserve a city that works more than bondholders and 30,000 city workers and retirees deserve all the cash they were promised.

 

“The residents will be happy,” Orr said of his plan. “The creditors will be sober and rational. The employees and the retirees are going to be distressed.”

Labor leaders are not happy with the new plans, but if its any consolation, Detroit’s public workers can take solace in the fact that they are not alone. Detroit’s problems may be particularly bad, but as an excellent Economist profile of public pensions reminds us, states and municipalities from California to New Jersey are struggling with exactly the same problems. The Economist advises these governments to begin cutting their pensions now, and early signs suggest this is already beginning to happen:

 

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[Valin]

Clash of the Blue Titans in Detroit

6/18/13

 

Blue power is in big trouble in Detroit, where the threat of bankruptcy has both public sector unions and municipal bondholders at the barrel of a gun. Mary Williams Walshs report in the NYT today makes it clear that unless unions can find a way to make other creditors take all the pain, theyre going to be faced with a serious crisis:

 

 

The citys proposals, which could give some bondholders as little as 10 cents on the dollar, are making some creditors think they would be better off in bankruptcy. They see the specter of a federal judge imposing involuntary losses as less ominous than it was for New York.

 

But city retirees, facing the prospect of sharply reduced benefits whether in bankruptcy or under Detroits restructuring proposal, think they stand squarely on the moral high ground because despite the poverty of many current and retired members, they have already offered big concessions.

 

Its not the employees that are costing the city money, said Edward L. McNeil, an official with the American Federation of State, County and Municipal Employees who is leading a coalition of 33 unions that will be affected by any restructuring of Detroits debts, which total roughly $17 billion.

Unions seem determined to fight municipal bond market investors over who should shoulder the burden for Detroits debts, setting up a lose-lose situation for blue politics.

 

(Snip)