CHICAGO — Detroit expects to file a final plan of adjustment by the end of the year, months ahead of a proposed March deadline, attorneys for the city told the federal judge overseeing the bankruptcy case.
"Time is our enemy," Jones Day attorney David Heiman, who represents the city, told Judge Steven Rhodes at a Friday morning hearing that marked the second meeting in what would be the largest municipal bankruptcy in the U.S. "The facts are not going to change no matter how long we wait."
Also at the hearing, Rhodes told creditors opposed to the city's proposed settlement with its interest-rate swap counterparties that they have 14 days to file motions, and said he would consider the issue then.
The judge ruled in favor of Detroit's request to set up a committee to represent 23,500 retirees who currently have no representation, and also said he would appoint a mediator to help negotiations as well as an independent examiner to keep an eye on the city's legal fees.
Detroit emergency manager Kevyn Orr has said repeatedly he believes the city can move swiftly through the complex Chapter 9 process, with a hoped-for exit date of fall, 2014, when Orr's tenure will be up.
Rhodes last week proposed a fast-paced, eight-month schedule that would have the city file its final plan of adjustment — how it would treat its estimated $18 billion of debt — by March 1, 2014.
Heiman told Rhodes Friday that it is the city's "hope and desire" to beat that March deadline by several months, filing a final plan by Dec. 31. But before the city can file a plan, the court has to determine whether it is eligible for bankruptcy.
Rhodes has set an Oct. 23 date for the eligibility trial, though the judge suggested Friday that he might move that date forward if lawyers agree to a limited discovery period.
The question of eligibility relies on the city proving insolvency — a point that one attorney representing the pension funds disputed at the hearing — as well as evidence that it tried to negotiate in good faith with its creditors.
Rhodes asked the city if it is continuing to negotiate with its creditors.
"Of course we are continuing to talk," Heiman said. "But there are significant differences that are going to be difficult to bridge."
Representatives met with creditors last week, with unions on Friday, and plan to meet with others this week, the attorney said.
But no one likes Orr's restructuring plan, which would rely on $2 billion of notes to divide among $11.4 billion of creditors on a pro rata basis, Heiman added.
Negotiations "are civil and friendly yet when it comes to the point of saying, 'How do you view our proposal?', no one likes it and that's not surprising," Heiman said. "Our proposal requires significant across-the-board debt relief."
Attorneys for several creditors at the hearing told Rhodes that the city has not negotiated in good faith, and that it has essentially presented Orr's proposal without any give-or-take.
Rhodes told creditors opposed to the city's first and only settlement, with the swap counterparties, that they have another two weeks to file motions objecting to the deal.
Orr had said he hoped Rhodes would approve the settlement at the hearing, but creditors argued that they needed more time to discover the impact of the settlement on other creditors.
An attorney for Syncora Guarantee, Inc., which insures part of the city's $1.4 billion pension certificates and the interest-rate swaps hedging them, told Rhodes that the insurer has been excluded from negotiations.
Banks that hold pension certificates that are hedged by the swaps and bond insurer, which insures the swaps and the certificates, all filed objections to the city's settlement plan.
Under the settlement, Detroit would pay swap counterparties Merrill Lynch and UBS AG 75 cents on the dollar for the termination, currently estimated at just under $300 million.
Orr said the settlement would give the city access to badly needed casino revenues that are being used to secure the swaps.
The settlement was the result of "good faith, arm's length" negotiations between the parties, the motion says. "[T]he ability to access, and use, the casino revenue will be essential to the city's continued ability to survive and ultimately to create value for all of its creditors."
Under the settlement, the banks give up their rights to terminate the swaps, and the city can terminate them over a period of time at a rising cost. If Detroit opts to terminate them before Oct. 31, 2013, it will pay the banks 75% of the termination cost; before Nov. 15, it will pay 77%; and before March 14, 2014, it will pay 82%.
The agreement prohibits the banks from seeking payments from the bond insurers that insured the swaps.