June 17, 2014 at 11:33 pm

Creditors: Bankruptcy judge's tour of Detroit could be dangerous

U.S. Bankruptcy Judge Steven Rhodes )

Holdout creditors want to block Detroit’s lawyers from taking U.S. Bankruptcy Judge Steven Rhodes on a tour of the city, arguing security could be jeopardized if the route through one of the country’s most dangerous cities is publicized in advance.

Three creditors — Assured Guaranty Municipal Corp., Berkshire Hathaway Assurance Corp. and Financial Guaranty Insurance Corp. — asked Rhodes Tuesday to scuttle the three-hour blight and crime tour, arguing it is risky, irrelevant and unprecedented in bankruptcy court.

“The risk that details of the bus tour could leak in advance, or be discovered by the media while the tour is in progress — or indeed could be revealed through live reporting on social media — creates not only security risks but also the possibility that interested persons or groups could seek to alter conditions or stage incidents or confrontations at the proposed viewing locations,” lawyers Lawrence Larose and Alfredo Perez wrote in a court filing.

Detroit’s bankruptcy team proposed the tour to give Rhodes a first-hand glimpse of the city’s conditions, which could be mitigated if the judge approves a plan to restructure $18 billion in debt.

The city has proposed having the U.S. Marshals Service or other security personnel accompany the judge and creditor lawyers during the tour. The date is unscheduled and would not be made public.

When the tour idea came up during a court hearing in May, Rhodes was agreeable, saying: “I do think it would be valuable.”

Tour stops have not been finalized, but the trip includes visits to the Detroit Institute of Arts, rail lines and downtown redevelopment areas.

“The city will take all necessary precautions,” Bill Nowling, spokesman for Detroit Emergency Manager Kevyn Orr, said Tuesday. “There will be no safety issues.”

The city’s legal team suggested the tour will help Rhodes put into context evidence he will hear about blight.

“Such a suggestion defies common sense,” lawyers for Berkshire Hathaway and FGIC wrote. “Whatever ‘context’ might be helpful when addressing plan confirmation issues, that ‘context’ for a city of Detroit’s dimensions and complexity will not come from the brief series of scattered stops that the city proposes to conduct.”

Another creditor, National Public Finance Guarantee Corp., said a bus tour is an inefficient use of the court’s and parties’ time.

Instead, Rhodes can look at photos, videos and listen to expert witness testimony.

The tour likely will become a spectacle, the creditor argued.

A tour, which would kick off an August trial over the city’s restructuring plan, is improper and impractical, the lawyers wrote.

Rhodes does not need to tour the city to determine whether the restructuring plan is well-intentioned or laudable, the lawyers wrote.

The real question, they wrote, is whether the restructuring plan is feasible, fair, equitable and in the best interests of creditors.

Assured has objected to the restructuring plan, arguing it would impair interest rates and negatively impact Detroit Water and Sewerage bondholders.

“Resolution of these objections will require detailed factual and expert testimony regarding the financial condition of the DWSD as well as the municipal finance markets, none of which could plausibly be argued will be obtainable through the bus tour,” the lawyers wrote.

Instead of driving through blighted neighborhoods, Rhodes can review a report by the Detroit Blight Removal Task Force, the lawyers argued.

The recent report involved a building-by-building survey of 380,000 parcels in Detroit.

Also, there will be little time for creditors to propose their own tour stops or coordinate security, the lawyers wrote.

Instead of a tour, Detroit’s legal team could provide evidence to the judge’s expert witness, Martha Kopacz, the lawyers argued.

She is helping evaluate the city’s debt-cutting plan.

This is the second proposed blight and crime tour. The first one was proposed last year for Detroit’s financial creditors and required Wall Street types to sign a death waiver.

The tour never materialized.

rsnell@detroitnews.com
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