CHICAGO — The judge overseeing Detroit's bankruptcy case denied a request from major creditors, led by bond insurers, to slow down the city's fast-track schedule for approval of key bankruptcy documents.
The creditors attacked the city's schedule request and its recently filed documents, saying they are "grossly incomplete" and said Detroit so far has shown no seriousness about pursuing settlements with its creditors.
But U.S. Bankruptcy Judge Steven Rhodes after a hearing Tuesday approved the city's motion for an expedited schedule to approve its disclosure statement and plan of debt adjustment. Detroit filed the documents with the federal court Friday. It later filed a request for a fast-track schedule to assess whether the disclosure statement is adequate, the first step in the plan confirmation process.
In the hearing, Rhodes warned that the city could run out of money if the case dragged on too long.
"The problem with delay is the city will not have any more money to pay you if this is put off two or four or six months," Rhodes told an attorney who represents the city's retirees, according to local news reports. Detroit "is not a retail operation with a Christmas season coming," the judge said.
Syncora Guarantee Inc., joined by most other major creditors, challenged the city's schedule in a
The judge Monday published his own ambitious schedule for the plan confirmation process, which would culminate in a trial on the plan starting June 16.
Detroit asked the court to approve a March 26 deadline for objections to the disclosure statement, and an April 11 hearing date for the disclosure statement. Rhodes' schedule sets a March 28 objection deadline and an April 14 hearing date.
The creditors call the 440-page disclosure statement "skeletal" and "grossly incomplete," and note the debt-adjustment plan lacks important exhibits.
"In short, the city's filed disclosure statement is a placeholder, shell document — not the 'disclosure statement' the bankruptcy rules contemplate triggering a disclosure-statement process," they argued in their brief.
Detroit wants to fast-track the case in order to emerge from bankruptcy by September, when emergency manager Kevyn Orr is expected to leave his post. The city warns in its disclosure statement that it may not be able to get the plan confirmed if it's not accomplished before Orr leaves.
"While the objectors share the city's desire to reach a consensual plan expeditiously, the proposed schedule will not expedite that result, and will only frustrate attempts to achieve that goal further by denying creditors the facts they need to evaluate the plan and plan disclosure, and unduly increasing the cost of proceedings," the creditors argued, saying it will only mean more litigation down the road.
"The reality is that the city has made virtually no progress in resolving any key issues with its key creditors," the creditors said. "Indeed, after nearly seven months in Chapter 9, no consensus exists. To be sure, the city's proposed short runway to a disclosure statement hearing will jeopardize its own plan confirmation prospects and negatively impact its citizens."
The plan is missing 32 exhibits, according to the insurers. Among the missing exhibits are the expected settlement between the city and its interest-rate swap counterparties; the documents outlining the Detroit Institute of Arts settlement, which would raise money for pensions in exchange for protecting the museum's city-owned art collection; terms of proposed new water revenue bonds; terms of a retiree health care settlement agreement, and a schedule of reductions to allowed pension claims.
"In each instance, the missing disclosure is an important part of the plan, is or may be the subject of much controversy, and directly and materially impacts the recoveries of certain classes of creditors and considerations of all creditors who must consider whether to accept the skewed allocation of the limited assets offered by the plan, or reject the plan and oppose confirmation on the grounds, among others, that the plan unfairly discriminates between creditors and is not fair and equitable to them."
Rhodes at the Tuesday hearing urged the city to supply the creditors with more specific settlement information. Detroit's attorney, Bruce Bennett of Jones Day, said the city would file a few additional documents but denied that the city left out much information, according to local reports.
Syncora was joined in its objection by bond insurers Assured Guaranty Municipal Corp., Ambac Assurance Corp., Financial Guaranty Insurance Co., as well the European banks that hold the city's pension certificates. Detroit's two pension funds and its largest union also joined the objection.
