The last of Detroit’s major pension debt holders settled their objections to the city’s solvency plan in the eleventh hour, as the city made its final arguments to end bankruptcy.
“The end really is in sight,” said Bruce Bennett, Detroit’s lead attorney. “This plan is very broadly consensual at this point and the city has settled with all the objectors and all the major economic players in the city of Detroit.”
Investors including hedge fund managers Aurelius Capital Management and bond insurer Financial Guaranty Insurance Company were owed $1 billion by the retirement system. If the city’s plan is passed, the investors will be given $141 million in new notes.
Debt holders had previously argued against Detroit’s pensioners receiving a higher payment.
According to the city’s updated plan filed in April, current retirees would see their pensions cut by 4.5% and future pensioners could see as much as a 20% reduction. Cost of living adjustments would also be trimmed from benefit calculations.
In his closing arguments, Bennett argued for Detroit’s plan to carve $7 billion from its $18 billion in liabilities and reinvest $1.7 billion over 10 years for city services. He also highlighted the number of brokered deals since filing its Chapter 9 bankruptcy on July 18, 2013.
“It’s hard to overstate the significance of the fact that that’s only 15 months and eight days ago,” Bennett said. “We had litigation with everybody about something.”
The plan also includes a “grand bargain” intended to protect the city’s art collection from being sold to pay off debt holders and reduce pension cuts using $816 million from private foundations and Michigan taxpayers.
“It is a reasonable decision for the city to want to keep a world-class art museum in the city as a potential contributor to its future,” Bennett said.
US Bankruptcy Judge Steven Rhodes said he would decide whether the plan is feasible and fair to creditors next week.
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