Detroit’s $178M bankruptcy tab ‘reasonable,’ judge says

Robert Snell
The Detroit News
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Detroit — The city’s $178 million bankruptcy tab is reasonable considering the case’s complexity, the city’s “extreme financial challenges” and substantial discounts given by law firms and consultants, Detroit’s bankruptcy judge said Thursday.

The order from U.S. Bankruptcy Judge Steven Rhodes comes one month after closed-door negotiations led to the city’s lead law firm Jones Day revealing it slashed its bill by more than $17.7 million, and is one of the judge’s final acts before retiring this month.

“The city is now on a path to success precisely because of the expertise, skill, commitment, endurance, personal sacrifice, civility and proficiency of all of the professionals in the case, including most certainly those whose fees are subject to review in this opinion,” Rhodes wrote Thursday.

In all, the total cost of Detroit’s bankruptcy exceeded $183 million. The state has reimbursed the city almost $5.3 million, according to the judge’s order.

Jones Day earlier defended its total bill of $7.9 million as "entirely reasonable" and argued it was one of the few firms capable of handling "cutting edge" issues posed by the biggest municipal bankruptcy case in U.S. history.

Jones Day, a global law firm, took a 24-percent cut in the fees it intended to charge Detroit taxpayers for helping the city dump $7 billion in long-term debt in bankruptcy court.

Detroit stands to realize an estimated $10 billion or more in economic benefits, Jones Day lawyer Heather Lennox said. She said the law firm helped Detroit slash total liabilities by about 50 percent, unsecured liabilities by 75 percent, which lets Detroit dodge a projected $3.9 billion deficit over the next decade.

Plus, the restructuring plan approved by Rhodes will enable the city to reinvest $1.7 billion over the next decade on public safety and other services, Lennox added.

The bankruptcy bill totaled $170.2 million before a state reimbursement of $5.29 million, which brought the total paid from the city's general fund to $164.91 million.

Among the top paid professionals were investment banking firm Miller Buckfire, $22.82 million; restructuring firm Ernst & Young, $20.22 million; and operational restructuring firm Conway MacKenzie, $17.28 million.

Miller Buckfire said it would give $1 million to a local charity that helps residents afford water service if Rhodes concluded the firm’s fees were reasonable.

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