Detroit's city workers and retirees overwhelmingly agreed to accept the city's debt adjustment plan, according to results filed late Monday, potentially clearing the way for the struggling city to exit bankruptcy in the next few months.
Documents filed in U.S. Bankruptcy Court show the city's current and retired police and fire employees, along with other active and retired city workers, will accept pension reductions to help adjust $18 billion in debt in the largest-ever U.S. municipal bankruptcy case. Most bondholders rejected the plan, along with insurers backing some of the debt.
The city declared that the "overwhelming" vote by members of its two retirement systems to accept changes to their pensions puts it on track for a coming trial to determine whether the plan is fair and feasible. That phase is scheduled to begin on Aug. 14, overseen by Judge Steven Rhodes.
"The voting shows strong support for the city's plan to adjust its debts and for the investment necessary to provide essential services and put Detroit on secure financial footing,” said Detroit Emergency Manager Kevyn Orr in a statement.
Detroit filed for bankruptcy in July 2013 after decades of dwindling population and a declining manufacturing base left the city of approximately 688,000 unable to pay its bills.
About 82 percent of the Police & Fire Retirement System and 73 percent of the General Retirement System retirees and active employees voted in favor of the plan, which calls for pension reductions, the statement added.
Under the so-called grand bargain, Detroit will tap $466 million pledged by philanthropic foundations and the Detroit Institute of Arts and $195 million from the state of Michigan to ease pension cuts and save art work from being sold to pay city creditors.
A rejection of the plan would have dissolved the grand bargain, leaving retirees with bigger pension cuts.
Four classes of Detroit creditors, including limited-tax general obligation bonds and pension debt, voted to reject the plan, while six accepted it, the court filings showed.
Voting results for $5.27 billion of water and sewer revenue bonds were unclear. Two of the three bond insurers whose votes were to be counted in lieu of bondholders, voted against the plan, according to court documents.
Parties to the city's first creditor settlement - Bank of America unit Merrill Lynch Capital Services and UBS AG - also accepted the plan, which would give them $85 million to terminate costly interest-rate swap deals. But 100 percent of the creditors for $1.47 billion of defaulted pension debt associated with the swaps rejected the plan, which offers them a recovery of just pennies on the dollar.
Syncora Guarantee Inc and Financial Guaranty Insurance Co, which guarantee payment of the pension debt, are two of the last remaining major creditors battling the city in court.
Syncora late on Friday asked the court to delay the confirmation hearing until Sept. 29, citing a lack of full documentation of settlements Detroit has entered into with some creditors. The bond insurance company said its ability to prepare for the hearing is "significantly prejudiced" without the documents. Lawyers for the city objected to the delay, saying it was unnecessary and potentially costly. Syncora is one of the city's few remaining hold-out creditors.
Nearly 96 percent of holders of unsecured limited-tax GO bonds turned down the plan, while 87 percent of unsecured unlimited-tax GO bond creditors voted for it.
A July 18 report by Martha Kopacz, a senior managing director at Phoenix Management Services in Boston, who was chosen by Rhodes in April as an expert witness, concluded that the plan was feasible and that its revenue, expense and payment assumptions were reasonable.
(Reporting By Karen Pierog and Lisa Lambert, Editing by David Gaffen and Jacqueline Wong)