Detroit bankruptcy stalls amid court action
Judge rules state governor overstepped his authority by approving city’s filing
Depending on the outcome of the appeal of Judge Aquilina’s order, the initial bankruptcy hearings could begin as soon as next week. Yesterday, Judge Steven Rhodes was picked to oversee the case. Judge Rhodes is a hometown selection, having served for 28 years as a bankruptcy judge in the Eastern District of Michigan.
The initial stages of the case will consist of Mr Orr and possibly state officials showing that there was no available remedy for Detroit’s troubles other than bankruptcy. “We didn’t make this decision in haste,” Mr Orr said. “This is a decision that has been winding its way through the city for the better part of six decades.”
Employee unions and creditors may argue otherwise - either by challenging the size of Detroit’s debt, or Mr Orr’s assertions that he bargained in good faith to reach out-of-court settlements with bondholders, retirees and others. Some labour unions had accused Mr Orr of using bankruptcy as a threat during negotiating sessions.
Mr Orr said that, despite marathon talks with creditors, there was little or no movement toward settlements. “We are finally at a point where we simply can’t kick this can down the road any further,” he said. There is no blueprint for Detroit’s recovery at this point.
In the short term, Mr Orr said that a deal with two secured creditors, Bank of America and UBS, to accept 75 cents on the dollar for $340 million in liabilities would free up casino revenues that could be used for city services. The arrangement would provide the city with about $11 million a month in casino receipts. That cash is critical to keep the city safe and functional during a drawn-out bankruptcy process.
Mr Orr said he expected Detroit to emerge from bankruptcy before his term as emergency manager ends in 14 months. For Mr Snyder, placing the state’s largest city in bankruptcy is a calculated risk that its decline could be reversed under court supervision. He said that he did not anticipate any direct state or federal money would be needed in the effort, but that government grants to help remove abandoned buildings and improve Detroit’s infrastructure would be essential to the city’s comeback.
New York Times