Kwame deal blamed for bankruptcy
Ann Arbor — A top consultant in Detroit’s bankruptcy said Friday the city’s financial collapse “was not inevitable,” blaming bad decisions from the Kwame Kilpatrick administration for the current crisis.
Investment banker Ken Buckfire, president of Miller Buckfire & Co., detailed Friday the city’s trip through financial despair — a road that could have been avoided if the city hadn’t borrowed $1.4 billion under ex-mayor Kilpatrick to prop up pensions, he said.
“It was not inevitable in any way,” Buckfire stressed at the annual Private Equity Conference on the University of Michigan campus. “It was simply a lack of leadership. Detroit has had a very long and painful history that I think we’ve not closed the chapter on.”
Buckfire added the city’s future success now hinges on providing quality services. It’s something, he said, that won’t happen overnight but is carved out in its 10-year restructuring and reinvestment plan.
“We’ve been through an awful lot to create a legitimate second chance for the city of Detroit,” he said. “The city will have every opportunity and every asset available to it to encourage people not only to move back to the city, but invest in the city. It all comes down to will people believe the city is providing an adequate level of services, because that’s all this is about.”
Buckfire was joined Friday by Detroit Emergency Manager Kevyn Orr as the two outlined Detroit’s investment outlook post-bankruptcy and a key settlement aimed at bringing the bankruptcy case to a close.
The 50-minute presentation comes one day after Detroit announced a detailed agreement with its largest remaining creditor in the historic Chapter 9 case.
Under the tentative deal, Financial Guaranty Insurance Co. will redevelop the Joe Louis Arena site and its parking garage, among other considerations.
FGIC and the city engaged in mediation for weeks to reach a resolution that would settle its $1.1 billion claim stemming from the bad pension deal backed by Kilpatrick.
“Some people are going to say ‘you gave too much,’ ” Orr told reporters after the speech. “These people lent the city a billion dollars cash. It wasn’t on time, it wasn’t on credit, it was cash and we don’t have to pay it. It’s a good deal all around and they become a development partner.”
Orr added the bankruptcy process has led to “remarkably quick turnaround” for Detroit.
“We like to think we’ve provided a reason for this (the bankruptcy) to move along,” he said.
Under the deal, FGIC will replace the longtime home of the Detroit Red Wings with a hotel, riverfront condominiums and retail shops. The project, which includes the arena’s parking facilities, would aid in the transformation of a stretch of riverfront west of Cobo Center and complement earlier redevelopment efforts along the Detroit River.
The hotel won’t be built until 2017 or open until 2022.
The agreement also means FGIC would agree to support the city’s plan to cut $7 billion and become a partner in Detroit’s revitalization.
Orr noted the arena site is a prime piece of land and makes for an easy — and necessary — development.
“We think the demand is there, we think the location is there and the value proposition is there,” he said. “...this is an issue where you get your value by building.”
The agreement also calls for FGIC to bring on a development partner. The time frames laid out in the deal allows for the project to be completed in the next eight to 10 years, Orr said.
When asked if FGIC had identified a partner for the project, Orr responded: “No comment.”
Orr also declined Friday to weigh in on dissension between Mayor Mike Duggan and city council members over an ordinance that would require certain developers to negotiate with the city’s local communities over protections for residents and city-based job guarantees.
“I understand the issues, but the mayor and council will cycle through this,” he said.
Orr added that the FGIC deal does not have such provisions built in. It will “stand on its own, as is.”
A second bond insurer, Syncora Guarantee Inc., reached a separate deal with the city last month.
Syncora’s agreement involves a long-term lease of the Detroit-Windsor Tunnel to a subsidiary of Syncora, cash and a parking underneath Grand Circus Park.
Buckfire testified during the bankruptcy trial earlier this month that Detroit’s smaller debt load and additional financial oversight called for under the city’s debt-cutting plan are among the factors contributing to an increased confidence in the city among capital lenders.
The components, he added, and “unprecedented” financing the city secured for after the bankruptcy, are increasing confidence in “the new Detroit.”
The city’s plan will ultimately have to be confirmed by U.S. Bankruptcy Judge Steven Rhodes if he deems it fair and feasible.
Closing arguments in the trial are anticipated next week.