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 Momentum for the city's plan to adjust its $18 billion debt burden
was building after Detroit last week won court approval for a
crucial settlement over interest rate swaps and reached an agreement
with bond insurance companies over the treatment of voter-approved
general obligation bonds.
Under the deal with the Retired Detroit Police and Fire Fighters
Association announced by U.S. Bankruptcy Court mediators on Tuesday,
pensions for retired police and fire workers would not be decreased,
but cost-of-living increases would be cut in half. A separate
voluntary employee beneficiary association plan or VEBA will be
established for retiree healthcare, according to a court statement.
Detroit's state-appointed emergency manager, Kevyn Orr, hailed the
deal as "another significant step forward," and encouraged other
city creditors to resolve their differences with the city.
"We are securing support for the plan of adjustment — the time to
resolve our differences is now," he said in a statement.
The deal, which is contingent on more than $800 million in
contributions for retirees from foundations, the Detroit Institute
of Arts and the state of Michigan, marks the first between the
bankrupt city and one of its retired worker groups. The association
of retired police and fire workers has about 6,500 members, the
statement said.
PENSION OFFICIAL OPTIMISTIC
Meanwhile, George Orzech, chairman of Detroit's Police and Fire
Retirement System, said the pension deal taking shape with the
city's two retirement systems would increase the assumed investment
rate of return for the funds.
"We have agreements on several of the points," Orzech said.
Any deal that Detroit incorporates into its plan to adjust its
mountain of debt and exit bankruptcy will be subject to voting by
city workers and retirees, but Orzech expressed optimism a
negotiated plan can win member support.
"I believe the majority of retirees out there and some active folks
believe I have their best interests at heart," Orzech said.
He added that under the potential deal, the funds would drop their
attempt to overturn a December federal court ruling that found
Detroit was eligible for the biggest municipal bankruptcy in U.S.
history.
Amy Malsin, a spokeswoman for law firm Dentons, which is
representing a court-appointed committee for Detroit retirees,
declined to comment. Tina Bassett, a spokeswoman for Detroit's
General Retirement System, said fund officials "are still
negotiating in good faith and hope to be able to announce something
soon."
Late on Monday, Detroit in a court filing noted that "significant
modifications" have been made to its plan to adjust $18 billion of
debt and exit bankruptcy. In the response filed in U.S. Bankruptcy
Court to a slew of objections raised by city creditors over a key
supporting document for the city's plan, Detroit said it had reached
settlements over interest rate swaps and the treatment of
voter-approved general obligation bonds. The city also said it has
withdrawn a proposal to create a regional water and sewer authority.
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"Because of these modifications and amendments to the amended
disclosure statement, the city believes that many of the arguments
raised in the objections have been resolved or otherwise addressed
or mooted by the terms of the second amended plan and second amended
disclosure statement," Detroit's filing stated.
The city's filing also said it has adjusted some estimated
percentage recovery figures, and the city has increased the assumed
annual rates of investment returns for its two pension funds to 6.75
percent from a previously proposed 6.25 percent and 6.50 percent,
which would have resulted in a bigger unfunded liability for the funds.
Orzech said the higher percentage works for his fund, which is
currently earning almost 14 percent so far this year.
CREDITORS APPEAR TO HEED JUDGE'S PLEA
Judge Steven Rhodes, who is presiding over the Detroit case,
approved the swaps settlement on Friday and advised creditors that
"now is the time to negotiate" with the city.
Rhodes on Tuesday made it clear he still plans to hold a hearing on
Thursday over remaining objections to Detroit's disclosure
statement. The judge denied an emergency motion filed by bond
insurer Syncora Guarantee Inc to postpone the hearing until 14 days
after the city files its second amended statement.
The insurer, which had been battling Detroit over the swaps
settlement, said holding the hearing before creditors have time to
examine the revised document "is fundamentally unfair and does not
respect due process."
The city on March 31 revised a plan it initially filed in February
and Orr told Reuters last week he plans to file a second revision in
bankruptcy court this week.
Also, a group of mutual funds that hold Detroit water and sewer
revenue bonds told the court on Tuesday that they oppose certain
creditor voting options on the debt adjustment plan that make it
easier for the city to force the plan via a so-called cramdown on
nonconsenting creditors. The group consists of Fidelity Management &
Research Co, Eaton Vance Management, Franklin Advisers Inc, Nuveen
Asset Management and BlackRock Asset Management.
(Reporting by Karen Pierog in Chicago; editing by James Dalgleish
and Matthew Lewis)
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