Tag: detroit bankruptcy
Creditor Syncora Reaches Detroit Bankruptcy Deal, Issues Apology

Creditor Syncora Reaches Detroit Bankruptcy Deal, Issues Apology

By Nathan Bomey, Detroit Free Press

DETROIT — Detroit’s stiffest bankruptcy opponent — a bond insurer called Syncora — reached a comprehensive settlement with the city of Detroit and issued a formal apology for accusing bankruptcy mediators of “naked favoritism.”

The remarkable development places Detroit within a stone’s throw of achieving an amicable resolution to its Chapter 9 bankruptcy — a seemingly impossible task just months ago, when pensioners, financial giants, and other creditors were jockeying to grab every last penny.

To be sure, a powerful bond insurer called Financial Guaranty Insurance Co. (FGIC), which was previously allied with Syncora, lingers as the city’s biggest remaining opponent. Several hedge funds and more than 600 individual people are still objecting to the city’s bankruptcy.

But Syncora’s decision to withdraw its objections to the city’s restructuring plan clears a wider path for Detroit to ask Judge Steven Rhodes to approve its sweeping plan to slash more than $7 billion in liabilities and reinvest $1.4 billion over 10 years in services.

Judge Rhodes was set to continue the city’s historic bankruptcy trial at 8:30 a.m. this morning, but FGIC has asked for the trial to be delayed a week to give it more time to prepare after Syncora’s withdrawal.

Rhodes has emphasized that he won’t allow Detroit to exit bankruptcy unless he’s convinced the city’s plan is viable.

In a court filing, Syncora said it would offer details of its “comprehensive settlement” during this morning’s hearing.

Syncora and the city had agreed to a tentative settlement last Tuesday in which the insurer would get a 20-year extension on its deal to operate the Detroit-Windsor Tunnel, a 30-year lease on a city parking garage and millions in bonds and options to purchase city property.

Altogether, the deal is difficult to value, but people familiar with the accord have estimated Syncora will ultimately collect 20 percent to 25 percent of the approximately $200 million it’s owed.

The insurer has aggressively battled Detroit emergency manager Kevyn Orr’s plan of adjustment, repeatedly seeking delays and deriding the blueprint as unfairly treating financial creditors.

FGIC and Syncora have repeatedly criticized the city’s grand bargain to protect the Detroit Institute of Arts and reduce pension cuts by accepting the equivalent of $816 million over 20 years from nonprofit foundations, the state of Michigan and DIA donors.

In a particularly aggressive move, Syncora accused bankruptcy mediators Gerald Rosen and Eugene Driker of designing the grand bargain to benefit pensioners over financial creditors. They had accused Driker of a conflict of interest because his wife is a former member of the DIA board and listed Rosen’s public statements as examples of his biases.

Following those blistering statements, Judge Rhodes ordered the insurer’s attorneys to prove why they should not be sanctioned and said they should apologize, though he wouldn’t order it.

But today, Syncora issued a formal apology — and went a step further. It called Rosen’s efforts “herculean,” saying he has done a “great service to this community.”

Rosen had ordered Syncora into confidential mediation talks over the last several days.

“We observed first-hand his remarkable skill as a mediator; his tenacity and perseverance under incredibly trying circumstances; and his great personal sacrifices, which included many long hours and making himself available at any time and on short notice,” Syncora said. “This was a herculean effort, and without Judge Rosen’s steady hand and calm under pressure, the settlement would not have been achieved.”

It added: “The role of Chief Mediator is, in many ways, a thankless task. Here, in particular, the demands of this position have required great personal sacrifice not only by Judge Rosen, but also his family, who undoubtedly have shared in the stress and strain associated with Judge Rosen’s labors.”

The company’s Kirkland & Ellis attorneys said they erred by suggesting that Driker had not disclosed his wife’s DIA ties — when in fact he had.

“While we have already privately conveyed our apologies to Judge Rosen and the Drikers, the public nature of the mistaken claim demands both a formal withdrawal of that claim and, just as importantly, a public apology,” Syncora said. “We are deeply sorry for the mistake we made and for any unfounded aspersions it may have cast on Chief Judge Rosen and the Drikers.”

When the city and Syncora reached their tentative deal last week, people familiar with the accord said the insurer would not sign off without concessions from Bank of America and UBS.

The global banks — which agreed to their own $85 million settlement with Detroit on a soured financial bet called swaps — want Syncora and FGIC to cover their losses on the interest-rate transaction brokered by Mayor Kwame Kilpatrick’s administration in 2005.

Syncora, which has been in a precarious financial position for the duration of the bankruptcy, wanted the banks to release it from its obligation to cover those losses.

A person familiar with Syncora’s settlement said the swaps imbroglio would not derail its deal with the city.

Photo: ifmuth via Flickr

Interested in national news? Sign up for our daily email newsletter!

Detroit Police Arrest 9 People At Water Protest

Detroit Police Arrest 9 People At Water Protest

By Robert Allen, Detroit Free Press

DETROIT — Detroit police arrested nine protesters who were blocking a facilities entrance Friday afternoon that’s used by city contractors who’ve been shutting off water to delinquent customers.

Plastic restraints were used to handcuff the five men and four women who were loaded into a Detroit police bus at about 1:30 p.m. Another man, in a wheelchair, was lifted by officers into a van.

The protesters had been at the Transfer and Processing Facility used by Homrich on East Grand Boulevard since about 6:30 a.m. and were warned multiple times to clear the entrance. A line of cars belonging to contractors extended up a nearby hill as they waited for the protesters to leave.

The people who were arrested appeared calm and didn’t put up a fight as they were loaded onto the bus. Police Commander Elvin Barren said they likely will be released later today.

About 30 protesters were at the scene when the arrests started. They sang, “Water is a human right, we shall not be moved,” as the ones blocking the entrance were loaded into the bus.

Once the entrance was clear, several cars streamed in and several trucks streamed out.

The protesters picked up their signs, snacks, and noisemakers and left the scene within a half-hour of the arrests.

Police at the scene said that blocking the entrance was not only preventing water shut-offs, it was keeping taps from getting turned back on for people who paid up on overdue bills.

The shut-offs have attracted national attention as they’ve been ramped up by the bankrupt city working to recoup about $90 million owed for water use, according to previous reports.

Photo: ifmuth via Flickr

Interested in national news? Sign up for our daily email newsletter!

Thousands Go Without Water As Detroit Cuts Service For Nonpayment

Thousands Go Without Water As Detroit Cuts Service For Nonpayment

By Alana Semuels, Los Angeles Times

DETROIT — It has been six weeks since the city turned off Nicole Hill’s water.

Dirty dishes are piled in the sink of her crowded kitchen, where the yellow-and-green linoleum floor is soiled and sticky. A small garbage can is filled with water from a neighbor, while a bigger one sits outside in the yard, where she hopes it will collect some rain. She’s developed an intricate recycling system of washing the dishes, cleaning the floor and flushing the toilet with the same water.

“It’s frightening, because you think this is something that only happens somewhere like Africa,” said Hill, a single mother who is studying homeland security at a local college. “But now I know what they’re going through– when I get somewhere there’s a water faucet, I drink until my stomach hurts.”

Hill is one of thousands of residents in Detroit who have had their water and sewer services turned off as part of a crackdown on customers who are behind on their bills. In April, the city set a target of cutting service to 3,000 customers a week who were more than $150 behind on their bills. In May, the water department sent out 46,000 warnings and cut off service to 4,531. The city says that cutting off water is the only way to get people to pay their bills as Detroit tries to emerge from bankruptcy — the utility is currently owed $90 million from customers, and nearly half the city’s 300,000 or so accounts are past due.

But cutting off water to people already living in poverty came under criticism last week from the United Nations Office of the High Commissioner for Human Rights, whose experts said that Detroit is violating international standards by cutting off access to water. “When there is genuine inability to pay, human rights simply forbids disconnections,” Catarina de Albuquerque, the office’s expert on the human right to water and sanitation, said in the communique.

“Are we the kind of people that resort to shutting water off when there are disabled people and seniors?” said Maureen Taylor, chair of the Michigan Welfare Rights Organization. “We live near the Great Lakes, we have the greatest source of fresh water on Earth, and we still can’t get water here.”

The issue of utility affordability is acute in Detroit, with its high proportion of low-income residents and an infrastructure whose costs were once borne by a much larger population. But municipal analysts say the problem is becoming more prevalent everywhere as extreme weather and its unusual range of high and low temperatures force utility bills ever upward.

In Iowa, for instance, there were nearly 10,000 electricity and gas disconnections in April, a state record, as the weather warmed and utilities could shut off power without breaking the law. (Many states have laws prohibiting the disconnection of gas or electricity during the cold winter or hot summer months.)

But the price of water and sewer services has far outpaced other utilities and the rate of inflation, according to Jan Beecher with the Institute of Public Utilities at Michigan State University. The reason is that much of the nation is in a construction and renovation cycle, with cities now spending billions on renovations after long neglecting them.

Whereas federal programs have been developed to help people pay for the rising cost of fuel and electricity, no such program exists for water, Beecher said.

“We’ve never really developed a clear public policy toward universal service and water,” Beecher said. “International organizations are concerned with a basic level of service, but with water, the tricky thing is that drinking water would fall into that, but watering the lawn would not be considered a basic human right.”

“The real issue is the obligation of the utility to bill affordably so that people will be able to avoid disconnections of service,” said Roger Colton, a consultant with Fisher Sheehan and Colton who specializes in the economics of utilities. “That’s the issue that is quickly coming to the forefront.”

The last time Detroit began shutting off water for unpaid bills a decade ago, Colton worked with the Michigan Poverty Law Program to develop a program that would help the water department collect money while still keeping water affordable. He found that whereas the federal Environmental Protection Agency recommends that families spend no more than 2.5 percent of their pretax income on water and sewer service, some Detroit residents were paying more than 20 percent.

Colton argues that cities won’t get the money they want by simply shutting off services. Instead, he says, utilities should require residents to pay a percentage of their income to the water department for service.

“If you give someone a more affordable bill, you end up collecting more of the bills,” he said.

Taking Colton’s advice into account, Detroit’s water department implemented a program that allowed residents to start making payments on their bills even if they were thousands of dollars behind. But that program was cut during the city’s bankruptcy, said Lorray Brown, with the Michigan Poverty Law Program. The city, still in bankruptcy, is probably not in a position to pay for a similar program now, she said.

AFP Photo / Bill Pugliano

Interested in national news? Sign up for our daily email newsletter!

Detroit Automakers Pledge $26 Million To Protect City Pensions, Art

Detroit Automakers Pledge $26 Million To Protect City Pensions, Art

By Matt Helms and Mark Stryker, Detroit Free Press

DETROIT — Saying the fate of the Detroit Institute of Arts and easing pension cuts in Detroit’s bankruptcy are critical to the city’s future, representatives of Detroit’s three automakers on Monday committed $26 million to the grand bargain on which much of the city’s exit from bankruptcy is based.

The donations are about preserving the city’s cultural heritage and helping pensioners facing steep cuts to retirement benefits, but “most importantly this money is intended to help the Motor City get back on its feet again,” said Reid Bigland, an executive for Chrysler, which is donating $6 million to the DIA-pension deal. “This is really about being a contributor and working with those who are also committed to revitalizing this city.”

General Motors and Ford and their charitable arms also are donating $10 million apiece, a major chunk of the $100 million the DIA has committed to raising for the federally mediated deal in which ownership of the museum will be transferred to an independent charitable trust for the equivalent of $816 million. All of the cash will flow into a fund to help reduce pension reductions for thousands of city workers. DIA board chairman Gene Gargaro said that auto companies’ contributions have pushed the museum to 70 percent of its $100 million commitment.

There was poetry in the morning announcement being made in the DIA’s famous Rivera Court, home of Mexican muralist Diego Rivera’s “Detroit Industry” murals, a masterpiece whose depiction of noble Depression-era workers in Ford’s River Rouge factory underscored the historic links between the auto industry, the city’s cultural heritage and the working men and women who will benefit directly from the grand bargain. It was Edsel Ford who financed the creation of the murals in 1932, paying Rivera $25,000.

DIA leaders continue to solicit corporate, individual and foundation gifts to reach its $100 million threshold, but there’s an even steeper financial mountain the museum still has to climb. The DIA must raise another $200 million or more in endowment funds during the next eight years necessary to fund annual operations when its tricounty property tax millage expires in 2022. The tax provides about $23 million in annual income, so the DIA needs a total endowment (investment fund) of about $400 million to cover the hole in the budget once the millage disappears.

“We’re making strong and steady progress on the grand bargain,” said DIA chief operating officer Annmarie Erickson. “We would like to get this wrapped up expeditiously. I think we’ll be able to turn our attention to the endowment in the near future.”

Chief U.S. District Court Judge Gerald Rosen, the federal mediator in the bankruptcy and the chief architect of the art-for-pensions grand bargain, praised as “heroes of the bankruptcy” all of the donors and retirees who are supporting the deal, as well as the political leaders who last week approved a $195 million contribution from state government.

“Today we are all Detroiters, we’re all Michiganders and we’re all DIA-ers,” Rosen said.

Governor Rick Snyder and Detroit’s emergency manager, Kevyn Orr, said it’s now up to retirees to approve the deal, and they strongly urged yes votes as the beneficiaries face a July 11 voting deadline. If retirees reject the deal, they face far larger cuts.

The city also must convince U.S. Bankruptcy Judge Steven Rhodes to confirm the city’s bankruptcy exit plan, called a plan of adjustment, with the grand bargain as its centerpiece. That trial is expected to take as long as five weeks starting later this summer.

Photo: ifmuth via Flickr