|By Tresa Baldas, Matt Helms and Alisa Priddle, Detroit Free Press|
|McClatchy-Tribune Information Services|
Mediation breakthroughs -- most notably lining up about
On Wednesday came the first draft of the city's highly anticipated plan of adjustment, a detailed document that shows how
On Friday, meanwhile, the city dropped a bombshell, announcing it's suing over a bad pension deal from the Mayor
But many of the city's other most pressing issues are nearing resolution with far more collaboration:
-- On Thursday,
-- On Wednesday, the
-- On Tuesday, the
-- Meanwhile, negotiations are coming to a head on a 40-year deal to lease the water department to a new regional authority in exchange for
A balancing act
Legal experts attribute much of this progress to mediation, a process that few bankrupt municipalities have ever used. But they're not
That's because the
While mediation likely will speed
"The rub here is that
Court-ordered mediation, by law and design, is meant to be private. It allows parties to air their issues -- and any potential dirty laundry -- without the fear of having confidential information exposed, with the ultimate goal to reach a settlement.
What has transpired is a delicate balancing act in bankruptcy court, where the public's right to know how public money is being handled is being weighed against the rights of creditors and debtors to resolve their disputes in private.
Endgame taking shape
Announcements from mediators and details from the draft plan of adjustment last week show an endgame for
The 99-page plan appears to favor pensioners over other unsecured creditors. It's still full of financial blanks to be filled in once dollar figures are nailed down on cuts and changes to retiree pensions and health care plans.
But early indications suggest the pension funds will get more cents on the dollar than other unsecured creditors. To attach hard numbers, there needs to be an agreement on how much the city's two pensions are underfunded.
The plan recommends setting up a health care trust called the Detroit VEBA to manage retiree insurance benefits -- much like
While the plan is tweaked, experts say, the aggressive mediation already in process can help bring the whole bankruptcy to a close.
"The more you can agree on in advance, the better," Bernstein said. "What's proving to be true, especially with the urging of
Not everyone is happy
Not everyone walks away happy in mediation.
"If you're a litigant, sometimes you like mediation when it gets the result you want. And you don't like it when you don't get the result you want," said
Siegel, who cochairs the bankruptcy and restructuring group at
"That's what drives people to the mediation table," Siegel said. "It goes back to the scarce resources. If you're dealing with scarce resources and the suggestion is, 'You better get in there sooner than later,' that may end the case quickly."
He continued: "Some may be unhappy ... but the most important thing at the end of the day is for the city to be in much better shape. Its goal cannot be to make everybody happy."
Two major banks know that all too well.
The ruling was a big blow to many: the banks; Orr, who has said he needs to pay off the banks to free up roughly
Rosen declined to comment for this report. In court documents, he acknowledged that the
Rosen's recommendation drew the ire of several creditors, who, in a rare move, criticized the federal judge and accused him of improperly supporting the bank settlement. "Confidentiality is key to any mediation so that all parties can speak freely in the spirit of negotiation," objectors wrote in a court filing, arguing that mediators should act "as facilitators, not arbitrators."
"We're really gratified," said
More to be mediated
As lead mediator, Rosen has overseen several contentious restructuring talks between the city and its creditors. He also brokered the rescue fund to boost pensions and shield artwork from being sold. The grand bargain, however, also likely will require some cooperation from the unions. They likely will have to agree to more concessions to help solve the pension crisis and help dig the city out of debt. Rhodes already has hinted that such cooperation will be key in moving ahead.
Given the scope of the case, plenty more disputes are headed Rosen's way, say legal experts, who now expect
"The more that parties and a mediator can resolve without having to utilize or drain the resources of the court, I think everyone is better off," said
According to Lieberman and other bankruptcy experts, use of mediation in large bankruptcy cases is a growing trend, with companies including
For example, since 2010, just eight towns and municipalities filed bankruptcy nationwide, according to
"That's the beauty of bankruptcy court. Even if you weren't at the table when the deal was cut, you can still have your day (to object)," Lieberman said.
That's what happened in
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