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 Judge Steven Rhodes confirmed the city's plan to shed about $7
billion of its $18 billion of debt and obligations and plow $1.7
billion into improvements, finding it both fair to creditors and
feasible to implement.
"The city has worked honestly, diligently, and tirelessly to
accomplish precisely the remedy that the bankruptcy code establishes
for municipalities," Rhodes said in the ruling he read from the
bench.
He acknowledged the anger the bankruptcy fueled among many Detroit
residents and urged them to look forward.
"And so I ask you, for the good of the city’s fresh start, to move
past your anger. Move past it and join in the work that is necessary
to fix this city," he said.
He also called Detroit's inability to provide adequate services to
its residents "inhumane and intolerable," saying that the city's
plan aims to fix that problem.
Once the proud symbol of U.S. industrial strength, Detroit fell on
hard times after decades of population loss, rampant debt and
financial mismanagement left it struggling to provide basic services
to residents. During the 15-1/2-month bankruptcy process, the city's
historic collection at the Detroit Institute of Arts (DIA) came into
play as a potential pot of assets to satisfy creditors.
The journey through Chapter 9 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 in to $816
million from foundations, the DIA and the state of Michigan to ease
pension cuts and protect city-owned art work from sale.
In his ruling, Rhodes said that settlement, which was key in winning
the support for the plan from Detroit's two retirement systems and
scores of city workers and retirees, "borders on miraculous." Bigger
cuts to retiree healthcare were justified because that benefit,
unlike pensions, was not protected under Michigan's constitution, he
said.
However, a deal that granted unsecured holders of the city's
unlimited tax general obligation bonds a 74 percent recovery was
possibly at the top range of reasonableness, Rhodes said. He also
noted that bond repayment can no longer be the only top budget
priority in Michigan ahead of pensions.
Richard Ciccarone, head of Merritt Research Services, said Detroit
changed the risk profile for municipal bonds.
"It's a milestone for municipal credit risk. If we look back over
the past 50 years, this stands out as evidence that municipal bonds
are not risk-free."
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Two companies that guaranteed payments on Detroit bonds and were the
last major holdout creditors in the case, Syncora Guarantee Inc
[SYCRFS.UL] and Financial Guaranty Insurance Co [FGIC.UL], received
options to develop parcels of land. Rhodes imposed the plan on two
classes of miscellaneous creditors.
With the cost of Detroit's consultants and lawyers topping $140
million, Rhodes said a process will be established to determine if
those fees are reasonable.
Attending Rhodes' ruling were Detroit's state-appointed emergency
manager, Kevyn Orr, who took Michigan's biggest city to bankruptcy
court, and Mayor Mike Duggan, who is now tasked with carrying out
the plan. Orr came under fire from many Detroit constituents and
city-elected leaders when he was appointed by Michigan Governor Rick
Snyder to turn the city around.
“The rule of law, comity, civility and unity prevailed. Sometimes
not too easily - but eventually,” Orr said at a news conference
following the ruling.
Duggan, at the same news conference, took issue with Rhodes' concern
that it is a possible conflict of interest for the mayor and a
member of the city council to have a seat on a nine-member,
state-created oversight board for a post-bankruptcy Detroit.
"I am going to sit on that financial review commission to make darn
sure that every single document they ask for, every single concern
they raise is responded to promptly by the city of Detroit," Duggan
said.
Michigan Governor Rick Snyder, who authorized the bankruptcy, also
noted at the news conference that much work remains to be done. "We
need to redouble our efforts on the neighborhoods, to make Detroit a
place where people want to raise their families."
(Additional reporting by Karen Pierog in Chicago, Peter Suciu and
Serena Daniels in Detroit, Hilary Russ and Megan Davies in New York;
editing by David Greising, Lisa Shumaker and Matthew Lewis)
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