CHICAGO -- Detroit emergency manager Kevyn Orr said Friday he expects an eligibility fight over the city’s petition to file for Chapter 9 bankruptcy protection, but that his plan to pay creditors between 10 cents and 20 cents on the dollar should make for a speedy process.
At a Friday morning press conference with Michigan Gov. Rick Snyder after the city’s momentous decision to file bankruptcy, Orr also said his recent settlement with counterparties on its interest-rate swaps is critical to the city’s recovery over the next decade.
The settlement with Bank of America Merrill Lynch and UBS AG, gives Detroit access to $180 million in annual casino revenues, desperately needed money that Orr said the city will use to help rebuild over the next 10 years.
Orr’s capital plan calls for the city to spend $125 million over the next 10 years.
The debt restructuring plan, unveiled on June 14, calls for Detroit to issue $2 billion of notes to cover $11.4 billion of debt the city calls unsecured. The repayment plan will prove crucial to hastening what experts predict could be a costly and years-long process, Orr said. The $2 billion figure is based on careful calculation of what the city can actually service, he said. “With the cash flows we have, there’s not a lot of room,” he said. “That’s why I’m highly confident that we can do this within the time we have left.”
To qualify for bankruptcy protection, the city has to prove that it is insolvent and that it negotiated in good faith with its creditors. Detroit attorneys late Thursday filed thousands of documents in federal bankruptcy court in support of their case.
Orr said Friday he expects a battle on both fronts.
“We will have an eligibility fight, I suspect,” Orr said. “That’s why we filed a scheduling process to bring some order to the process.”
The city asked the court to set a 30-day deadline of Aug. 19 for objections and filings contesting the city’s eligibility for Chapter 9.
Orr is still in negotiations with its creditors, and additional settlements may be in the works, Orr said.
“After the [June 14 creditor] meeting, some of those constituencies took that up, and we announced some settlements and we hope in the near term to announce more,” he said. “Some decided to sue me. Who’s not negotiating in good faith?”
Orr said lawsuits filed by various creditors, including the city’s retirement systems and a bond insurer, hastened the decision.
“We were being sued almost on a weekly basis,” he said. “That’s the very thing I asked creditors not to do.”
Orr said he asked a judge to appoint a committee to officially represent the city’s 23,500 retirees in the bankruptcy case to pave negotiations with creditors that Orr said currently have no formal representation.
Snyder and Orr have both repeatedly said the bankruptcy filing is Detroit’s only viable option after 60 years of population and revenue declines and political mismanagement. Orr said when he took over the city in March, he was surprised more by the corruption than by the dismal numbers.
“What shocked me wasn’t the numbers, what shocked me was the tolerance for this behavior for decades,” he said. He said he knew citizens were outraged when Snyder appointed him to take over the city, but added, “I wish there had been a lot more outrage over the last 10 to 20 years.”
Orr traced the city’s hastening decline over the last several years to 2005 and 2006, when Detroit issued $1.5 billion of pension certificates to cover its pension payments. The interest-rate swaps hedging $800 million of the certificates have dogged the city for years, and since 2009 have disrupted access to casino revenues, one of the city’s steadiest revenue streams.
“We’re finally at a point where we cannot kick the can down the road any further,” Orr said.
Orr said bankruptcy’s automatic stay would give the city breathing room, and that he planned to continue to make payroll and pay its vendors.
Snyder said the bankruptcy would give clarity to creditors who think they won’t get paid.
“Currently those creditors don’t know what they’re going to get paid or if they will,” he said. “This will allow us to give them some certainty.”
Snyder said the bankruptcy decision may mark a low point in the city’s history, but that it will pave the way toward stability in the future.
“What would happen if we didn’t do this act?” Snyder said. “This wouldn’t be the lowest point, and it would get worse.”