Detroit bankruptcy trial delayed; city details water bond refinancing plan
Detroit — U.S. Bankruptcy Judge Steven Rhodes on Wednesday delayed the start of the city’s bankruptcy trial until Sept. 2, hours before the city filed an updated debt-cutting plan that incorporated a previously announced agreement with creditors.
The so-called “plan of adjustment” was the sixth version of a plan to shed about $7 billion in debt and end the biggest municipal bankruptcy in U.S. history.
Rhodes pushed back the trial’s start from Aug. 29 to Sept. 2 after allowing about three dozen people — including former Detroit Councilwoman JoAnn Watson — to participate by presenting evidence and questioning witnesses. The trial will help Rhodes determine if the city’s debt-cutting plan is feasible and fair.
The plan referenced a deal to refinance almost $5.2 billion in debt, a move that could free up cash for Detroit’s restructuring and potentially speed an exit from bankruptcy court.
The refinancing deal, approved recently by Detroit Water and Sewerage commissioners, would lower the utility’s interest rate and slash costs. It holds the potential to save customers across the region millions of dollars.
The deal involves offering secured water bondholders a chance to have the city buy back the bonds. By doing so, the city could issue new bonds and refinance up to $5.183 billion of debt. The amount of savings for the city depends on how many bondholders accept the offers, but the maximum savings would be significantly less than $500 million, according to a person briefed on the deal.
The city’s bankruptcy trial is expected to last several weeks and will focus on the “grand bargain,” a $660.8 million plan to soften pension cuts and shield the Detroit Institute of Arts collection from creditors.
Retired and current workers officially approved modest reductions in their pensions last month. But at least four classes of creditors have rejected the city’s cost-cutting plan. The results mean there are still contested aspects of Detroit’s exit from bankruptcy that will have to either proceed through court or be negotiated.
The city has not reached deals with several creditors, including the Detroit Fire Fighters Association, a group of European banks and bond insurers Syncora Guarantee Inc. and Financial Guaranty Insurance Co.
About 82 percent of retired and active Detroit police and firefighters approved the city’s plan to reduce their inflationary increases but preserve their base pensions, according to balloting results filed in U.S. Bankruptcy Court.
Members of the General Retirement System approved the city’s plan on a margin of about 73 percent yes, 27 percent no during a historic 60-day vote that ended July 11, the results show.
Detroit’s plan calls for base pension cuts for General Retirement System members of 4.5 percent. Some General Retirement System retirees and workers face additional cuts of up to 15.5 percent through the city’s plan to recoup excess interest earnings credited to their optional annuity savings accounts.
Detroit also got 88 percent of retirees owed lifetime health insurance benefits to accept $450 million for a $4.3 billion liability — one of the biggest debts the city could shed if the reorganization plan is approved by Rhodes.