Creditors say Detroit’s bankruptcy plan lacks needed details
(Reuters) – Creditor objections flowed into a U.S. bankruptcy court on Monday, claiming a document supporting Detroit’s plan to deal with $18 billion of debt and other obligations is missing crucial details.
Labor unions, bond insurers, bondholders, city retiree groups and Michigan county governments met Monday’s deadline set by the court and filed laundry lists of objections to the city’s disclosure statement. That statement explains how Detroit came to file the biggest municipal bankruptcy in U.S. history in July 2013 and how the city plans to treat its scores of secured and unsecured creditors in order to exit bankruptcy.
Detroit’s biggest union, the American Federation of State, County and Municipal Employees Council 25, whose members face cuts in retirement benefits, wrote that “the city has failed to provide large amounts of critical information.”
The union also said the city was remiss in not addressing any fallout from pension cuts.
“The city must disclose the risk that its financial projections do not properly take into account the added poverty rolls it may need to support, and further, the effect of such pension cuts on the morale of the AFSCME employees, the likely increase in crime and decaying social atmosphere, and all that comes with the proposed pension cuts,” the union’s filing said.
Judge Steven Rhodes, who is overseeing Detroit’s historic bankruptcy case, has set an April 14 deadline for the city to respond to the objections and an April 17 hearing on any unresolved objections to the revised disclosure statement the city filed with the court on March 31.
Several filings cited the lack of detail on the value of city assets that could be tapped to increase payments to creditors. Those included collections at the Detroit Institute of Arts. Money pledged by a group of philanthropic foundations and potentially from the state of Michigan would be used to aid the city’s retirees to avoid a fire sale of art works, under Detroit’s debt adjustment plan.
Syncora Guarantee Inc, a bond insurer that has been battling Detroit on many fronts, including the city’s desire to terminate interest rate swap agreements with two investment banks, claimed the city has been “stonewalling” creditors throughout the bankruptcy process.
“The city’s creditors have no basis on which to assess the amended plan’s impact on their rights, or the nature, value, and risk of proposed creditor recoveries under the amended plan,” Syncora’s filing stated.
Michigan counties of Oakland and Macomb cited inadequate information on city’s plans to deal with the regional water and sewer department that affect their residents.
An ad hoc committee of Detroit bondholders noted in a filing that the city’s plan lists various options for the more than $5.5 billion of outstanding water and sewer debt. Those options include the issuance of new bonds by the city, a new regional water and sewer authority, or a private third party that may own, lease or hold a concession for the utilities, according to the filing.
“Unfortunately, almost nine months after it filed for chapter 9, and only 10 days before its disclosure statement hearing, the city remains unable to solidify what plan it wishes to pursue for the systems and the (water and sewer) bonds, or any substantial details for that plan,” stated the filing by bondholders Nuveen Asset Management, BlackRock Asset Management, Fidelity Management & Research Company, Eaton Vance Management, and Franklin Advisers, Inc.
The city’s solicitation of entities interested in bidding to operate and manage water and sewer services attracted 41 initial responses by Monday, the deadline set by Detroit, according to Bill Nowling, a spokesman for Detroit Emergency Manager Kevyn Orr.
(Reporting By Karen Pierog; Editing by Steve Orlofsky and Ken Wills)