Detroit facing big bill from bankruptcy consultant
Lansing — Mayor Mike Duggan confirmed Wednesday the city faces an outstanding bill of more than $20 million from investment banking firm Miller Buckfire & Co. for its work in Detroit’s bankruptcy.
Miller Buckfire’s contract calls for the firm to be paid a flat $28 million fee for its services in negotiating deals tied to city water and sewer debt and securing Detroit loans to support operations during its Chapter 9 bankruptcy and pay off some creditors.
Duggan declined to comment further on the fees consultants have charged the city in the bankruptcy because of confidential negotiations over disputed bills that began Wednesday at the federal courthouse in Detroit.
The Detroit News asked the mayor Wednesday about a purported outstanding bill from Miller Buckfire after Duggan testified mid-day before a state Senate committee in Lansing on foreclosure legislation.
“It sounds in the range of what I’ve heard is coming,” Duggan said.
As of late October, Miller Buckfire had billed Detroit $6 million for its services.
A renegotiated contract signed by Emergency Manager Kevyn Orr in June calls for the firm to get a flat $28 million fee and eliminated a possible bonus for securing a deal to privatize water department operations, which never materialized.
“That’s for the work that they have performed and haven’t been paid for yet,” Orr spokesman Bill Nowling said Wednesday. “The billings are consistent with the contract and the level of service they have provided.”
Nowling said Miller Buckfire has been working for the city below “market rate for restructuring services.” He said the fact the firm twice renegotiated its contract “is unusual for banks to do.”
If the city’s transaction would have been a typical customer, the New York-based firm’s fees alone would have been in excess of $100 million, Nowling said.
U.S. Bankruptcy Judge Steven Rhodes has given Duggan standing to challenge the legal bills after the mayor was sidelined for most of the 16-month bankruptcy.
“We are in mediation and I’m under a gag order,” Duggan said. “I’ve expressed my opinion that I think the bills are too high, that they need to come down. There are huge dollars at stake.”
An Oct. 24 report from the city shows Miller Buckfire had charged the city $6.23 million and had been paid $5.76 million for its services, which have included negotiating debt settlements with financial creditors and pursuing opportunities for monetizing the city’s water department.
A representative of Miller Buckfire could not be immediately reached Wednesday afternoon for comment. Ken Buckfire, the firm’s co-president and managing director, is a native of Detroit.
Nowling said Miller Buckfire aided the bankrupt city in securing exit financing and a quality of life loan at market rate, and helped the city to restructure its debt on the DWSD bonds at a “substantial savings,” Nowling said.
“This is all a result of the work of our investment bank,” Nowling said, noting that refinancing its debt at a lower interest rate saved Detroit almost $2 billion in interest payments.
“That’s just on restructuring the debt alone, which is the direct result of the work of our investment bankers,” Nowling said. “For a $28 million investment and we’ve saved over $1 billion, that’s a really good return on that investment.”
Jones Day, the city’s lead bankruptcy law firm, had billed Detroit $52.3 million through late October. Accounting firm Ernst & Young had the second highest bill at $19.9 million, followed by $17.2 million in fees charged by restructuring firm Conway MacKenzie.
Duggan said he’s been told legal fees will be at least $177 million before the bankruptcy is over. As of late October, the city had $140 million in bills for attorneys and consultants, $130 million of which had already been paid out, according to a city report.
“That is money that is not going to services for the people of the city of Detroit,” Duggan said one day after the city’s government buildings experienced a massive blackout due to an archaic electric grid. “So I didn’t think those numbers were reasonable. In mediation, we’re going to see how the process plays out and I really can’t say anything.”
Staff Writer Robert Snell contributed.