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 U.S. Bankruptcy Court Judge Steven Rhodes could approve the entire
plan put forward by the city's emergency manager, Kevyn Orr. He also
could send the plan back for partial revision. An all-out rejection,
while possible, is not widely expected.
"I don't think (Rhodes) will throw it all out," said James Spiotto,
managing director of Chapman Strategic Advisors in Chicago and a
municipal bankruptcy expert. "He might ask for clarification or
adjustments."
The feasibility of Detroit's plan is expected to occupy most of the
court's attention during a proceeding scheduled to begin at 1 p.m.
EST (1800 GMT) on Friday. Most of the fairness questions appear to
have been answered with the settlements Detroit reached with major
creditors, including bond-insurance companies and public employee
pension funds.
Court-appointed expert, Martha Kopacz, testified the city's plan is
feasible. But she said the relatively fast pace of the city's case
may have produced more generous terms for creditors and pushed
Detroit "to the skinny end of feasibility."
 Kopacz, a senior managing director at Phoenix Management in Boston,
also said Detroit was "at the edge" of its ability to repay $275
million the city plans to borrow to finance its exit from
bankruptcy.
The plan to shed about $7 billion of Detroit's $18 billion of debt
includes $1.7 billion of reinvestment initiatives through 2023.
Those would be funded in part by improved revenue and cost savings.
Spiotto said the $1.7 billion "may turn out to be a drop in the
bucket," as Detroit's needs over the next decade would likely
eclipse that amount.
Michael Sweet, bankruptcy attorney with Fox Rothschild in San
Francisco, said Detroit will need to succeed with efforts to
revitalize. "They have to get people to come back and stay and feel
safe and secure," he said. "The city needs to prove it’s back."
In reaching his decision, Judge Rhodes can draw on thousands of
exhibits and hours of testimony from Orr, Mayor Mike Duggan, pension
actuaries, and others during a confirmation hearing that started
Sept. 2 and concluded Oct. 27.
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The biggest-ever municipal bankruptcy began on July 18, 2013 with
major creditors girding for battle and has wound down in a flurry of
settlements. A so-called "Grand Bargain" taps into $816 million from
foundations, the Detroit Institute of Arts and the state of Michigan
to ease pension cuts and protect city-owned art work from sale. Two
companies that guaranteed payments on Detroit bonds, Syncora
Guarantee Inc [SYCRFS.UL] and Financial Guaranty Insurance Co
[FGIC.UL], received options to develop parcels of land.
Judge Rhodes has signaled support for the settlements, noted Juliet
Moringiello, a professor at Widener School of Law in Harrisburg,
Pennsylvania. "There would have been clearer signals all along if
this isn’t good enough," she said.
Meanwhile, consultants and law firms have billed Detroit $140
million, with Orr's former law firm, Jones Day, billing the most at
$52.3 million through Oct. 24.
Rhodes has mentioned the possibility that the city could turn to
mediation or even litigation over its bankruptcy-related fees.
The costliness alone may deter other fiscally troubled cities from
filing for bankruptcy, Spiotto said. "It's the wake-up call for
other municipalities. Don't let it go too far," he said.
(Reporting by Karen Pierog in Chicago, Tom Hals in Delaware and Lisa
Lambert in Washington; Editing by David Greising and Lisa Shumaker)
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