CHICAGO — Attorneys will present closing arguments Friday in Detroit's court battle to enter Chapter 9 bankruptcy, capping an eight-day trial that centered on whether the city negotiated in good faith with its creditors.
Creditors fighting the city's eligibility called high-profile witnesses to testify, including Michigan Gov. Rick Snyder, former Treasurer Andy Dillon and top Snyder aide Richard Baird. The city called Detroit emergency manager Kevyn Orr, who spent the longest amount of time on the stand under questioning — nearly three days.
Closing arguments start Friday morning. The city's lead attorney, Bruce Bennett from Jones Day, estimated Thursday that he'll need 90 minutes, and the state's attorney said he would need 30 minutes. Attorneys for the unions, pension systems and retirees estimated their arguments will last three hours.
In related news, U.S. Bankruptcy Judge Steven Rhodes, who is overseeing the trial, set a date of Dec. 10 for a hearing on Detroit's controversial settlement with its interest-rate swap counterparties as well as its $350 million debtor-in-possession financing from Barclays.
Rhodes also set aside Dec. 11 and 12 for the hearing. Unlike the eligibility hearing, municipal market participants, namely the city's bond insurers and bondholders, have mounted strong battles against the proposed swap settlement and the DIP financing.
In testimony Thursday morning, Dillon echoed a comment he'd made Tuesday, saying he doubted a state-sponsored so-called bailout for Detroit was likely.
"I think it would be very difficult to get them to subsidize or fund Detroit with an appropriation," Dillon said of state lawmakers. He added that the Legislature could consider specific spending measures, such as for blight removal.
The former treasurer also testified that the state worked with Jones Day in 2012 to craft a consent agreement with Detroit that would survive if voters struck down the state's emergency management law. The consent agreement relied on various state laws for its power, Dillon said.
Voters ended up overturning the EM law in November 2012, and state officials quickly crafted and passed a new law to replace it.
Creditor attorneys throughout the trial have tried to establish that Jones Day worked with the state starting in early 2012 to lay the groundwork for a Chapter 9 bankruptcy.
Baird, a close aide to Snyder, testified that he had wanted Snyder to put contingencies on the bankruptcy filing, but the governor refused.
The possibility of attaching contingencies to the filing was also a topic during the depositions taken of top state officials, including Baird, last month. Creditor attorneys say that Snyder should have made the filing contingent on the city's promise not to impair its pensions, as required by the state constitution.
Baird said he wanted Snyder to make the filing contingent on the governor having final approval of Orr's plan of adjustment, but that Snyder refused.
Also Thursday, a financial advisor to the city's pension systems testified that Orr's team did not make an effort to negotiate with the systems.
The time frame between Orr's June 14 creditor proposal and the July 18 filing did not leave enough time to evaluate data or make an alternative proposal, said Bradley Robins, a restructuring and financial advisor with investment banking firm Greenhill & Co., Inc.
Robins also dismissed Orr's proposal to pay off $11.5 billion of unsecured creditors with $2 billion of notes. The note proposal was "not serious," Robins said. "I took it as the city putting creditors on notice that it wanted to start the process."