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Detroit revised bankruptcy exit plan envisions bigger pain for some
April 1, 2014 / 1:26 AM / 4 years ago

Detroit revised bankruptcy exit plan envisions bigger pain for some

March 31 (Reuters) - Some of Detroit’s retirees and bondholders would fare a little worse under a revised plan the city filed in U.S. Bankruptcy Court on Monday to deal with its $18 billion of debt and other obligations.

Investors who bought Detroit bonds that the city has deemed to be unsecured would stand to recover only 15 percent of their investment, down from 20 percent in the initial plan Detroit filed in February. [ID: nL2N0LQ2N6] That would be a cut of 85 percent of their bonds’ value.

At the same time, proposed cuts to pensions of some retired city workers grew in the revised plan. For police and fire retirees the potential cuts would rise to 6 percent from 4 percent in the previous plan in the case of a timely settlement, and to 14 percent from 10 percent if the plan is rejected and money pledged by foundations and the state of Michigan for retirees is not forthcoming.

The range of cuts to general city worker retirees remained the same at 26 percent with a settlement and 34 percent without.

The revised plan also lays out how voting by retirees on the plan would be construed as a timely settlement.

“If at least one half in number and two thirds in amount of holders of (Police and Fire Retirement System) pension claims and holders of (General Retirement System) pension claims separately vote in favor of the plan, then the holders of all such claims shall be deemed to have entered into a timely settlement with the city and the state,” according to a revised disclosure statement the city also filed.

The amended plan also called for creating a separate class on impaired creditors, those with claims related to retiree health, dental, vision and death benefits. The claims would be treated the same as other non-pension unsecured classes of claims, according to the document.

Detroit also laid out its proposal to end costly interest-rate swap agreements with two investment banks at a deeply discounted cost of $85 million. That deal has yet to win approval of Judge Steven Rhodes, who is overseeing Detroit’s historic bankruptcy case. He rejected two previously proposed deals as being too costly.

The city said it expects to file further changes before an April 14 hearing to approve the disclosure statement.

“The city looks to exit its historic bankruptcy by late summer as a fiscally solvent municipality that is better able to provide basic services to its residents,” a statement issued by Detroit said.

Before the city’s filing of a revised plan, bond insurer Syncora Guarantee Inc filed a motion to extend this week’s deadline to file objections until April 14. That would push back a court hearing on any unresolved objections to Detroit’s disclosure statement to April 28 from April 14, according to the motion.

Detroit’s largest union, the American Federation of State, County and Municipal Employees Council 25; the city’s two pension funds and other creditors supported the extension while the city condemned the move as a delay tactic.

A hearing on the motion is scheduled for Wednesday. (Reporting By Karen Pierog and Lisa Lambert; Editing by Mohammad Zargham)

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