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 As Detroit's state-appointed emergency manager Kevyn Orr looked on
in the courtroom, Bruce Bennett, an attorney for the city, sought to
convince Judge Steven Rhodes that Detroit's 1,034-page plan to
adjust $18 billion of debt would save the city.
"There is no doubt, your honor, that progress has been made, but
Detroit is still a city in distress," said Bennett, an attorney with
the Jones Day law firm, in his opening statement.
The plan is aimed at reducing Detroit's debt by about $7 billion and
reinvesting as much as $1.7 billion in the city, according to
Bennett.
Detroit made history nearly 14 months ago when it filed the
biggest-ever Chapter 9 municipal bankruptcy. The confirmation
hearing to determine if the city's plan to exit bankruptcy is fair
and feasible began on Tuesday and is scheduled to stretch through
Oct. 17.
In a pretrial conference earlier on Tuesday, Gregory Shumaker,
another Jones Day attorney representing Detroit, told Rhodes the
city may not finish laying out its case until the first week in
October.
Bennett is expected to complete the city's opening statement on
Wednesday morning. Supporters and opponents of the city's plan
collectively indicated they will need at least four hours to deliver
their opening statements.
Detroit has settled with most of its major creditors, including the
city's retired workers and two pension funds, but two insurance
companies - Syncora Guarantee Inc and Financial Guaranty Insurance
Co - have emerged as major objectors to the plan. Both guaranteed
payments on $1.4 billion of pension debt the city is seeking to void
and both are facing recoveries of just pennies on the dollar.
A so-called grand bargain would tap into $366 million pledged by
foundations and $100 million from the Detroit Institute of Arts over
20 years, as well as a $195 million lump sum payment from the
Michigan government. The money would be used to ease pension cuts
for city retirees and prevent the museum's collection from being
sold to pay creditors.
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The bond insurers have objected to the lopsided treatment of
similarly situated creditors embedded in the city's plan.
Bennett said the hold-out unsecured creditors have no grounds under
Michigan or federal bankruptcy law to push the city to sell or
monetize the art, which was valued at $8 billion in one appraisal.
He added that there was no evidence that parties to the grand
bargain colluded in any way.
As for other revenue-raising measures, Bennett said hiking taxes
would risk sending Detroit, which already has the highest rates
among Michigan cities, further into a downward spiral.
"Raising taxes now is not compatible with the goal of saving the
city," he said.
Earlier on Tuesday, Rhodes denied pretrial motions by the bond
insurers that sought to limit city evidence in the trial that was in
some cases derived from confidential court-ordered mediation. The
judge granted a motion by Syncora to exclude certain testimony by
Kenneth Buckfire, a key Detroit restructuring consultant.
If Rhodes determines the plan for fixing the city's finances is fair
and feasible, he can impose its terms on hold-out creditors in a
practice known as a "cram-down."
But questions have bubbled up in recent weeks about the city's
ability to recover from years of fiscal stress, and there remains
the possibility that Rhodes could not confirm the plan.
(Additional reporting by Lisa Lambert in Washington; editing by
Diane Craft, Cynthia Osterman, Matthew Lewis and David Greising)
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