CHICAGO — Michigan Gov. Rick Snyder Thursday affirmed his decision that a financial emergency exists in the city of Detroit and recommended Jones Day bankruptcy attorney Kevyn Orr to act as emergency financial manager of Detroit.
In his first public statements Thursday, Orr, a Michigan native, suggested that he would call Detroit bondholders and other creditors to the negotiating table, and said that Chapter 9 is a “cudgel” that he would be willing to use, but only as a last resort.
A state emergency loan board unanimously approved Orr’s appointment Thursday afternoon.
Orr, currently a resident of Washington, D.C., said he resigned Wednesday from Jones Day, where he was a partner and specialized in restructuring and bankruptcy law.
He oversaw the Chrysler bankruptcy in 2009, and called the Detroit job the “Olympics of restructuring” at a press conference with Snyder and Detroit Mayor Dave Bing.
The appointment came more than three months after a state review team found the city to be in a fiscal emergency for the second time in a year. Snyder announced two weeks ago that a state takeover was likely. The Detroit City Council formally appealed the decision Tuesday at a state hearing, and Snyder said he watched the hearing but still believes Detroit is in crisis and needs an emergency financial manger to take over.
Echoing recent comments by Snyder, Orr indicated he would be calling all creditors, including bondholders, to the table in an effort to bring down the city’s $14.9 billion of long-term liabilities. Snyder has said repeatedly that the city must cut its debt in order to stabilize its fiscal position.
“There are three prongs to Detroit,” Orr said, naming city services, retiree/employee costs, and debt services. “The bottom two prongs — that’s math. These are very sophisticated parties and they can look at the math,” he said. “People of good faith should be able to sit down at the table and come up with good results.”
Orr said he hopes to avoid what would be the largest municipal bankruptcy in the U.S. with successful negotiations.
“I am very comfortable in the bankruptcy courts in this country,” Orr said. “Chapter 9 is weighted toward a municipality, and I don’t want to have to pull that cudgel out if I don’t have to.”
Later Orr said, “Don’t make me go to the bankruptcy court. You won’t enjoy it.”
He said he hopes to complete large swaths of the restructuring under the tentative 18-month timeline proposed by Snyder. “If we work together we can get this done in much shorter than 18 months,” he said.
It’s unclear whether Orr will strip the mayor or city council of their salaries and offices, as other Michigan managers have done. Bing said at the press conference that he is happy to finally have teammates to partner with on rebuilding the beleaguered city.
“I don’t think the citizens care at this point who the mayor is, or who the city council is,” Bing said. “They want things to work.”
Earlier Thursday, the Detroit City Council decided in a closed-door meeting not to legally challenge the EM appointment.