Detroit is getting closer to settling its debts: this morning, a judge approved a deal between the city and two banks that would undo some of the financial knots that have tightened around the city. The Detroit Free Press reports:
The judge said the deal sets the stage for a potential “cram down” — a bankruptcy restructuring plan approved over the objections of creditors — and urged creditors to negotiate with the city in confidential mediation sessions.
“The message is that now is the time to negotiate,” Rhodes said. “Not later.”
Some creditors are still pushing back against the city's carefully constructed proposals. This week, for instance, one of Detroit’s creditors tried to throw a monkey wrench into the emergency manager's plan to keep Detroit’s artwork safe and in Detroit. The Financial Guaranty Insurance Company showed the bankruptcy court four different proposals for selling the artwork to interested buyers.
The proposed payouts to the city ranged between $1 billion and $2 billion, with very different structures. One group proposed paying the city as a 20 year loan, keeping the art in the city for now. Others simply wanted to buy all of the collection or selected works. The city’s current plan is to raise over $800 million for the collection, and place the art under the control of a nonprofit. The New York Times reports:
The motion did not propose how any proceeds should be divided among the creditors, but the retirees, as a group, have by far the biggest unsecured claims in the bankruptcy. Their pension fund is short by an estimated $3.5 billion, and their health plan is unfunded.
“Blindly proceeding with the obviously below-market ‘Grand Bargain,’ in the face of the proposals, is a fundamentally flawed approach,” Mr. Spencer said, referring to the city’s preferred deal. “The result will be less money in the pockets of retirees and the perception that municipal investment in Detroit is a fool’s bet.”
Detroit's pensioners, too, are looking for a better deal, USA Today reports:
"The elevation of the city's art above our hard-earned pensions and health care is unfair, offensive and elitist," [Detroit Fire Fighters Association president Jeff] Pegg said, reading a statement all four labor leaders signed. "We appreciate the city's art collection. But, stated bluntly: Art is a luxury. It's not essential, like food and health care."
But the law appears to be on the side of the art lovers. Kevyn Orr, Detroit’s emergency manager, was unequivocal, telling the New York Times: “We’re not going to sell any art…Under Chapter 9, no one can compel the city to sell any assets.”