CHICAGO — Detroit has reportedly proposed paying its pensioners more than its general obligation bondholders, and paying pensioners in cash, in contrast to bondholders who would receive notes equivalent to roughly 20% percent of their claims.
Retirees would get around 40% on the dollar in the proposed adjustment plan the bankrupt city circulated to creditors, according to a report in the Wall Street Journal.
The plan would distribute $4.2 billion that would be divided among Detroit's unsecured creditors, who include general obligation bondholders and retirees through city pension plans, according to newspaper reports.
The adjustment plan is a key milestone in the Chapter 9 bankruptcy process.
The New York Times, which also reviewed the plan, said Detroit's pension certificate holders would get around 10%.
The reports said creditors may get an additional $339 million if the city is able to close a deal to lease for 40 years its water and sewer system. That money would also be divided differently among creditors, according to the report.
The pot of money available to creditors reportedly also includes roughly $800 million in a plan raised by a group of foundations, the state, and the Detroit Institute of Arts that have pledged the money for pensioners in exchange for the protection of the city's art. The plan is still being fleshed out under the oversight of the bankruptcy court mediators.
In a new development, the plan treats its interest-rate swap debt as unsecured, according to the Detroit Free Press. The city has treated that debt as one of its most secured debts since it filed for bankruptcy last summer. But Bankruptcy Judge Steven Rhodes recently rejected a settlement with the swap counterparties, telling the city it had a good chance of winning if it treated the debt as illegal.
The Journal described the 99-page plan as a "very rough draft" that does not include any major settlement.
The city wants to file a more detailed plan with the bankruptcy court in two weeks.
