Regional News

Detroit's Eligibility Trial Begins

CHICAGO Detroit's eligibility trial opens Wednesday, just three months after the city's historic Chapter 9 filing.

It's the most critical stage so far of the bankruptcy case, and will determine whether the largest municipal filing to date can go forward.

Detroit's attorneys said they hope to stick to the fast pace they've made a priority from the beginning. The city's attorneys, from Jones Day, will begin the trial, and said they hope to finish their arguments by Friday. They plan to call at least five witnesses, including Detroit emergency manager Kevyn Orr, the city's investment banker Ken Buckfire, and police chief James Craig.

Gov. Rick Snyder may testify as well. The United Auto Workers union Monday said it has subpoenaed Snyder, along with outgoing Treasurer Andy Dillon and top aide Richard Baird, to testify about the motivations and decisions leading up to the July filing. More than 15 witnesses may testify all together.

Creditors including unions and retirees, who are objecting to the eligibility said they hope to finish their arguments by Tuesday. No bondholders or insurers are challenging the city's eligibility.

Federal Judge Steven Rhodes, who is overseeing the trial, has set aside Nov. 4 though Nov. 8 as additional dates if necessary.

To enter into bankruptcy protection, Detroit needs to prove that it's insolvent, that it either negotiated in good faith with its creditors or that negotiations were impracticable, that it was authorized by the state to file, and that it intends to file a plan of debt adjustment.

Detroit has $18.5 billion of debt it wants to restructure as part of the bankruptcy process, including $11.5 billion of which it is treating as unsecured.

Rhodes last week and Monday heard legal challenges to the city's eligibility. Attorneys for the city's unions argued that the Chapter 9 filing is illegal because it would violate state constitutional protection of pensions. Detroit attorney Bruce Bennett, from Jones Day, argued that federal law would allow the impairment in part because the city simply cannot make the payments.

Also Wednesday, the Detroit City Council will hold an early-morning session to consider an alternative proposal to Orr's plan to secure a $350 million debtor-in-possession loan with Barclays. The city council Monday rejected the measure, and is required under state law to propose an alternative plan that raises a similar amount of money. Details remained unclear as of late Tuesday, but council members were hinting to local media that a "credible entity" had stepped forward to offer a loan. The council scheduled a session for early Wednesday, before the start of Rhodes' hearing, in order to consider the new proposal or send Rhodes a resolution saying it disapproved of the DIP financing.




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