CHICAGO — Detroit is set to file a long-awaited plan to adjust its debt next week whether or not it has nailed down certain proposals, such as the lease of its water and sewer system.
Bankruptcy Judge Steven Rhodes has given the city, which filed the largest municipal bankruptcy in the U.S., until March 1 to file the plan of adjustment. The document will outline the proposed treatment of creditors that the city says are owed more than $18 billion of debt.
Detroit emergency manager Kevyn Orr and the city's Jones Day attorneys had hoped to file the plan by the end of 2013. Orr later pushed the date back to early January, then February.
The city now wants to file the plan by next week, said Orr spokesman Bill Nowling. "We will file with or without resolution on some of the outstanding issues, like what will happen to DWSD," he said, referring to the Detroit Water and Sewer Department.
A $1.9 billion plan to lease the system to a new regional authority for 40 years has stalled amid negotiations with counties that are reluctant to take on the additional debt without financial protection.
A draft 99-page plan was floated to creditors two weeks ago. The plan was filled with placeholders, but proposed that pensioners would get roughly 10 cents on the dollar more than general obligation bondholders.
Creditors will vote on the plan after it is filed. The city needs to reach approval from a class of creditors who make up two-thirds of the amount of debt and over half by number. Ultimately, if they reach that number, and Rhodes approves, the remaining creditors would likely be subject to a cram down.
Oakland County Executive L. Brooks Patterson, who has been a leading critic of the water and sewer deal, blasted the agreement again Wednesday night during his annual state of the county address.
"The system is suffering from decades of neglect and will require billions in maintenance and EPA compliance costs," Patterson said during his address, which was his 20th. "As payers in this system, who have had nothing to do with the corruption and organization of failures ... we are still going to be the ones held responsible to pay for the repairs for the infrastructure," he said. "In other words, that's a long way of saying your rates are going to go up."
Detroit and the state want a deal that would create a five-member regional authority that would refinance $5.9 billion of outstanding revenue bonds to achieve savings, and pay the city $47 million a year for the 40-year lease.
Oakland officials want the state to step in with some kind of backup pledge for distressed communities in the system who are unable to pay their bills or for capital upkeep.
Patterson said he had told his top deputies to look at all the options including breaking off from the Detroit system and setting up its own water and sewer systems.
"No deal is better than a bad deal," the long-time executive said.
