State-appointed Emergency Manager Kevyn Orr on Thursday asked a federal judge permission to place the city into Chapter 9 bankruptcy protection.
The filing would begin a 30- to 90-day period that will determine whether the city is eligible for Chapter 9 protection and define how many claimants might compete for the limited settlement resources that Detroit has to offer. The bankruptcy petition would seek protection from creditors and unions who are renegotiating $18.5 billion in debt and other liabilities.
Detroit Emergency Manager Kevyn Orr, who in June released a plan to restructure the city’s debt and obligations that would leave many creditors with much less than they are owed, has warned consistently that if negotiations hit an impasse, he would move quickly to seek bankruptcy protection.
Michigan Gov. Rick Snyder would have to sign off on the filing. A spokeswoman did not immediately return telephone calls Thursday.
Orr’s spokesman Bill Nowling would not confirm Thursday that the filing is imminent. However, he said, “Pension boards, insurers, it’s clear that if you’re suing us, your response is ‘no.’ We still have other creditors we continue to have meetings with, other stakeholders who are trying to find a solution here, because they recognize that, at the end of the day, we have to have a city that can provide basic services to its 700,000 residents.”
This week, the city’s two pension funds (which have claims to $9.2 billion in unfunded pension and retiree health care liabilities) filed suit in state court to prevent Orr from slashing retiree benefits as part of a bankruptcy restructuring.
Ambac Assurance Guaranty, which insures some of the city’s general obligation bonds, has also objected to Orr’s plan to treat those bonds as “unsecured,” meaning they’re not tied directly to a revenue stream and would receive pennies on the dollar of their value. Ambac, and other creditors, have threatened to file suit.
Sources agree that Orr’s deal with creditors, widely reported to be Bank of America Corp. and UBS AG, to pay a $344-million swap with a $255-million debtor-in-possession loan, is instrumental in the timing of the potential bankruptcy filing.
The deal gives the city access to $11 million a month in casino tax revenues that Orr has said is key to maintaining city services while negotiations, in or out of bankruptcy court, take their course with other creditors and unions.