CHICAGO -- The judge overseeing Detroit's bankruptcy rejected a request by bond insurers and other major creditors to weigh in on the fate of the city's art collection.
U.S. Bankruptcy Judge Steven Rhodes also Thursday urged the city to negotiate with creditors such as its retirees as it crafts a plan to exit bankruptcy, expected in the next several weeks.
Rhodes ruled against bond insurers' request to set up their own committee to assess the city's art collection and propose ways to monetize it, saying he lacks authority and also believes the issue should be decided as part of the plan of adjustment.
"The court lacks the authority to grant the requested relief," Rhodes said in the ruling, according to the Detroit Free Press. The bankruptcy code does not permit him to impose the creation of a committee on the city, Rhodes said.
But he also said he would have rejected the motion even if he had the authority.
The fate of the art collection should be decided as part of the debate over the city's plan of adjustment, and as part of a "broad process that systematically addresses and resolves all objections," Rhodes said.
The judge also cited Michigan Attorney General Bill Schuette's opinion that the art cannot be sold to pay off the city's debt, calling it a "serious argument."
Bond insurers and other creditors, including retirees and the city's largest union, in November asked the court to allow them to set up their own committee to assess the value of the art at the Detroit Institute of Arts -- considered one of the city's most valuable assets -- and propose ways to monetize it.
During a Thursday hearing on the motion before Rhodes' ruling, creditors said it would be in everyone's best interest to come to an agreed-upon valuation of the art before Detroit files a plan of adjustment, expected in the next several weeks.
"Whether any of us like it, the art is in play," said Vince Marriott, an attorney for a group of European banks that own some of the city's pension certificates.
"I have to say that that is not altogether clear to me at all," Rhodes said. "It depends on what you mean by 'in play.'"
Detroit Emergency Manager Kevyn Orr hired Christie's auction house in September, which released a valuation of the art collection that estimated the value at between $454 million and $867 million. Ryan Bennett, an attorney for Syncora Guarantee Inc., said Thursday the true figure could be four times that estimate.
Creditors filing the motion include bond insurers Financial Guaranty Insurance Company, Syncora, and Ambac Assurance Corp. as well as FMS Wertmanagement. The city's largest union, American Federation of State, County and Municipal Employees, and a committee representing 24,000 Detroit retirees are also part of the motion.
Rhodes had been also expected to rule on a motion by Detroit that the court block an attempt by the city's retirees to halt Orr's effort to cut health care benefits, but he said he needed longer to consider the measure.
Rhodes had indicated he would rule on the health care motion Thursday, but said Thursday he would postpone a decision until Jan. 28.
Orr wants to shift retirees older than 65 to Medicare and those younger than 65 to the new health insurance exchange set up as part of the federal health care law.
The city would give employees under 65 a monthly stipend of $125 to help pay for insurance. The move would cut the city's annual health care costs to $30 million from $180 million.
Retirees sued to block the plan, saying it violates state and federal law.
As part of his ruling, Rhodes urged the city to ensure that its plan of adjustment is feasible and to negotiate with creditors as it crafts the plan.
"Plan feasibility may well require a fundamental and profound change in the city's pension funds or in the city's health care plans, or in the city's collective bargaining agreements," Rhodes said, according to the Free Press. "The city should be fully prepared for this issue at confirmation. And equally importantly, all parties must fully accept this premise in their plan negotiations."
