The Fed's latest news has prompted another round of what-ifs.
March 01--Detroit's major creditors asked Judge Steven Rhodes to slow down the city's fast-track bankruptcy -- with one creditor saying the likelihood of a fight over art and pensions is cause for delay.
An assortment of creditors -- ranging from unions to a major bond insurer to a group representing water bondholders -- asked Judge Steven Rhodes to push back the penultimate hearing over Detroit's bankruptcy restructuring plans that will determine the fate of the city's restructuring proposal.
Bond insurer Syncora -- one of the city's most consistent opponents in bankruptcy court -- said the city needs more time to negotiate a water department spin-off, resolve a dispute over the Detroit Institute of Arts and determine the size of its unfunded pension obligations. The insurer proposes delaying the June confirmation hearing, which is expected to last up to 10 days, to September.
The city said it's committed to the "expeditious time line" Rhodes proposed earlier this week because "it believes that time is of the essence in this Chapter 9 case and that the plan confirmation process should move forward as efficiently as possible." Still, the city asked Rhodes to delay the start of the hearing from June 16 to June 23.
But in a motion filed in U.S. Bankruptcy Court, Syncora called for "a thorough and meaningful consideration" of issues that could undercut the city's time line.
Among them is the value of the DIA's property, which Syncora and some other creditors are expected to argue should be sold to help pay for the city's debts and provide funds to reinvest in services.
The fate of the DIA has become a central issue in the bankruptcy. A group of nonprofit foundations have pledged $365 million, the DIA has pledged $100 million and the State of Michigan may contribute $350 million in a grand bargain that would reduce pension cuts and allow the museum to spin off from the city as an independent institution.
New York-based auction house Christie's estimated that city-owned art at the DIA -- which represents about 5% of the museum's collection -- is worth up to $870 million.
But Syncora wants the city to hand over legal documents outlining ownership information on all of the museum's property.
"Given the City's odd decision to value just 5% of the entire collection and its repeated failure to provide ownership information, there will be litigation surrounding the art and it will be time-consuming," Syncora said in its filing.
A coalition of other creditors, including a trustee representing water bondholders that control $6 billion in secured debt, suggested scheduling the confirmation hearing for July.
The UAW called on Rhodes to slow down the bankruptcy because of the potential cuts to pensioners.
Detroit emergency manager Kevyn Orr has proposed pension cuts of 34% to general retirees and 10% to police and fire retirees, although those cuts would fall to 26% and 6%, respectively, if they agree to support the grand bargain deal.
Orr says the cuts are necessary to help the city emerge from bankruptcy and to help fund a 10-year, $1.5-billion investment plan to fight crime, reduce blight and restore basic services.
But creditors have decried the proposed restructuring plan as unnecessarily harsh on the city's 24,000 retirees.
"While many Michigan residents and businesses will benefit from the improvements the City has incorporated into its revitalization plan, assuming that program continues to be based upon the plan of adjustment filed by the City last week, they will do so at the direct, significant and life-changing expense of their fellow citizens," the UAW said in its filing.
Syncora suggested that the city's negotiations to lease its water department to an outside authority in exchange for $47 million per year for 40 years should be resolved before the bankruptcy restructuring proceeds.
The insurer floated the possibility that the city should consider a water deal with a private investor instead of surrounding counties that would get seats on the board of directors under Orr's current proposal.
"While such a transaction has the potential to result in a better deal for the City and its creditors, at the very least, providing the City with time to explore this deal would improve the City's negotiating leverage with the suburbs," Syncora said.
Syncora also said that resolving a dispute over the amount of the city's unfunded pension liabilities will be a "time-consuming and complex task." It added that creditors will want to examine documents showing details of how the city plans to spend $1.5 billion over 10 years in improved services, such as blight removal and information technology to improve police protection.
Separately, Judge Rhodes on Friday rejected the U.S. Justice Department's proposal to establish a committee of unsecured creditors, which was to be led by an attorney making $1,050-per-hour.
The committee's agreement to participate in mediation talks -- which it had previously refused to do -- was "too little, too late," Rhodes ruled.
The judge said the committee would add unnecessary expense and not add enough value to make it worthwhile.
Contact Nathan Bomey: 313-223-4743 or firstname.lastname@example.org. Follow him on Twitter @NathanBomey.
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