CHICAGO -- All creditors in the Detroit bankruptcy case must vote on the city's debt adjustment plan by Friday, a key event that will set the stage for an August trial and the city's effort to exit Chapter 9 by early fall.
A California-based balloting agent will begin counting the ballots Friday.
Bankruptcy Judge Steven Rhodes, who oversees the case, has issued several orders giving the bond insurers who insure various bonds the right to the exclusive vote on the plan, above individual bondholders.
Ambac Assurance Corp., for example, has won the right to cast the sole vote on the plan's treatment of Ambac-insured unlimited- and limited-tax general obligation bonds. The insurers who wrap the $5.3 billion of water and sewer bonds will cast the central vote for that debt.
The holders of $1.4 billion of Detroit certificates of participation reached an agreement with the insurer that wraps the bulk of that debt that allows the insurer to cast the operative vote, but only if it agrees to reject the plan. Financial Guaranty Insurance Co., the insurer, will vote to reject the plan, which does not recognize the COPs as valid claims. Detroit has filed a lawsuit seeking to invalidate the certificates, saying they were issued illegally.
City and state officials, along with retiree, pension and union representative, have waged a publicity campaign urging retirees to vote yes on the plan. Without a yes vote, the so-called grand bargain that holds together the confirmation plan will fall apart.
The bargain features contributions to city pensions from private foundations, the state of Michigan, and the Detroit Institute of Arts that are touted as being worth $816 million, in return for protection of the city-owned art collection. As part of the deal, retirees would agree to give up their rights to appeal or sue the city or state in the future.
Detroit has reached settlements with most of its creditors, including retirees, pensioners, and the bond insurers of the unlimited-tax and limited-tax general obligation bonds. It has not reached deals with the COPs holders, water and sewer bond holders, or the insurers wrapping that debt.
The city needs to win approval from creditors who make up two-thirds of the amount of debt and over half by number in each debt class. If they reach that number, and Rhodes approves, the remainder of the creditors would be subject to a potential cram down.
Also this week, a district court will hear an appeal by bond insurer Syncora Guarantee Inc. on an early ruling on the city's ability to enjoy full access to its casino revenues.
