July 15, 2014 at 1:00 am

Daniel Howes

Stage set for trial on city's exit plan

The “grand bargain” is on track to become the Grand Coalition, because that’s what’s forming ahead of next month’s confirmation trial before U.S. Bankruptcy Judge Steven Rhodes.

Apparent approval of a deal to inject the equivalent of $816 million into city pensions and secure the collection of the Detroit Institute of Art creates a formidable coalition of labor and retirees, business and philanthropy, the state Legislature and the governor’s office — leverage the city is expected to use to press its plan to exit bankruptcy.

“If there was ever a time to do this, we’re obviously in that time to do it and get it done,” Bill Nowling, spokesman for Emergency Manager Kevyn Orr, said Monday.

A majority of the city’s 32,000 current and future pension recipients who cast votes in the “grand bargain” balloting agree, should widely reported unofficial results be confirmed by the city early next week as anticipated. With just one month before the trial begins Aug. 14, Detroit’s bankruptcy team has negotiated deals with at least one party in each class of creditors, including major unions and the city’s two pension funds.

“Think back to where the various parties were at the outset of the case,” said Douglas Bernstein, managing partner of Plunkett Cooney’s banking, bankruptcy and creditors’ rights practice group. “They were completely polar opposites in terms of their position.”

Not anymore, testament to the stakes, less favorable alternatives and a diverse coalition of leaders whose outlook and decision-making have been shaped by Rhodes’ rulings, the opportunity to forge a fresh start for the city and the harsh realities of bankruptcy.

This isn’t how Detroit is supposed to get things done. The city whose self-destructive tendencies are matters of historical fact, be it in the municipal decline or the crack-up of its hometown auto industry, likely would not be the poster child for a community finding a way to come together.

Yet Detroit and Michigan are doing just that in the crucible of bankruptcy. With the help of federal mediators led by Chief U.S. District Judge Gerald Rosen, a diverse coalition of leaders — Republicans and Democrats, unions and management, city and outstate — is collectively steering through bankruptcy to limit the collateral damage of Chapter 9 to residents, retirees and institutions.

Legendary for its labor-management confrontation and famous for its political dysfunction, the epicenter of the largest municipal bankruptcy in American history is not supposed to reach epic deals without bruising public battles. Or to speed through bankruptcy at a pace few experts initially thought possible.

Michigan’s Republican-controlled state government is not supposed to risk election-year politics by financing a rescue package for a Democratic Detroit. More than a dozen foundations, joined by DIA donors, are not expected to produce fresh cash to finance a deal with the city’s retirees and pension funds.

Retirees and would-be pensioners are not supposed to vote in their best interest and approve the “grand bargain,” as sources close to the process describe the outcome. But they have, effectively making the unions and pension funds de facto allies of Orr, Gov. Rick Snyder, Republican majorities in the state House and Senate and the city’s high-priced bankruptcy professionals in the effort to confirm Detroit’s restructuring plan and vanquish holdout creditors.

There’s more to do. Even as lawyers on all sides prepare for the confirmation trial, bargainers for the city and the Detroit Firefighters Association will push to reach a new contract; the city and Syncora Guarantee Inc. will continue to spar (and negotiate) over a lawsuit concerning the controversial $1.4 billion pension Certificates of Participation deal.

And questioning of expert witnesses testifying on the overall feasibility of Detroit’s plan will take place concurrent with videotaped depositions of industrialist Roger Penske (July 23) and Quicken Loans Inc. Chairman Dan Gilbert (July 29). All of it is in preparation for a trial that will take place no matter how many more deals Emergency Manager Kevyn Orr’s bankruptcy team can deliver.

“Even if Syncora and Financial Guarantee fell in line, you would still have a trial on feasibility because” Judge Rhodes “won’t approve a plan that isn’t feasible,” Bernstein said, citing the judge’s frequently voiced intention to approve a sustainable plan for Detroit that is bolstered by meaningful structural change, not one-time fixes to raise cash and leave the problems behind.

“He knows they can’t afford to confirm a plan that they cannot live up to. The city cannot afford a do-over.”

No, it can’t. Like two of its hometown automakers five years ago, Detroit has a unique chance in bankruptcy to shed onerous debt, restructure obligations, repair broken operations and recast a narrative of decline — an opportunity not lost on a broadening spectrum of leaders and the people they represent.

daniel.howes@detroitnews.com
(313) 222-2106
Daniel Howes’ column runs Tuesdays, Thursdays and Fridays.

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