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Detroit Emerges From Bankruptcy

By Nathan Bomey and Matt Helms, Detroit Free Press (TNS)

DETROIT — With Detroit officially out of bankruptcy, now-former emergency manager Kevyn Orr said it’s not the next couple of years he’s worried about for the city, or even five years out.

“I think Detroit’s pretty well-situated in the near term,” Orr said Wednesday, hours after he, Michigan Gov. Rick Snyder and Mayor Mike Duggan announced Detroit’s departure from the nation’s largest-ever municipal bankruptcy.

“It’s got a pretty good team in place. It’s got people who’ve done this before and have good track records; they understand city government inside and out,” Orr said. “My concern really is in the long term.”

Crediting Duggan’s administration as being top-tier, Orr said he worried that, if Detroit does well, starts to turn around and even reflect some of the remarkable recoveries that parts of cities such as Miami and New York have seen in recent decades, Detroit leaders and residents won’t remember the lessons learned about out-of-control borrowing, mismanagement and corruption at City Hall.

“I hope people don’t forget what it took to get here,” the bankruptcy lawyer said as Detroit’s historic Chapter 9 status ended, setting in motion a sweeping plan to slash $7 billion in debt and reinvest $1.4 billion over 10 years to improve city services.

In a wide-ranging interview with Detroit Free Press reporters and editors, Orr was alternately serious and playful, detailing the challenges a post-bankruptcy Motor City faces, but also saying he’s now unemployed with no job offers, will take the rest of the year off, and even breaking into song, inspired by the interview setting: the newspaper’s conference room named after Stevie Wonder.

Orr said at a news conference Wednesday morning that the final paperwork required to allow the city to emerge from bankruptcy would be completed by the end of the day.

Judge Steven Rhodes approved the city’s restructuring plan in November, giving the city the authority to implement the grand bargain to help reduce pension cuts, preserve the Detroit Institute of Arts and start improving basic services.

The end of the bankruptcy also marks the end of Orr’s tenure. His resignation was effective at the same time the city emerged from bankruptcy.

“I feel very fortunate to have had the opportunity and very fortunate for the outcome,” Orr said. “The reality is the city is moving forward and that gives me a great deal of pride and satisfaction.”

Snyder appointed Orr in March 2013 to take over the city’s operations. Orr, a Washington, D.C., bankruptcy attorney with Jones Day, authorized the bankruptcy on July 18, 2013, and led restructuring talks with creditors.

“It’s truly historic,” Snyder said at the news conference at Detroit’s public safety headquarters. “It really happened because of great partnerships, of people working together.”

He added: “This has been an extremely difficult and hard process for many people, but people worked together. We have the city poised for a new chapter.”

Duggan welcomed Orr’s exit. The mayor and City Council will regain control of the city following Orr’s exit, but they will report to a state oversight board called the Financial Review Commission, which has broad powers to reject spending, borrowing, contracts and labor agreements.

“We’re better off today than we were 18 months ago,” City Council member Gabe Leland said.

Duggan noted the challenges he and city officials face in coming years, with requirements to stay within budget for three years in a row before Detroit can come out of strict state oversight.

The city’s plan of adjustment calls for up to $1.7 billion for blight removal and improvement of city services over the next decade, but that only comes about if Detroit can improve collections on revenues such as property and income taxes and make the city operate more efficiently.

There’s no check for $1.7 billion, Duggan said.

“Basically it’s money we’re going to see if we produce,” he said.

This story has been updated.

$85 Million Swaps Settlement Opens Door For Quicker Detroit Bankruptcy Exit

By Nathan Bomey and Matt Helms, Detroit Free Press

DETROIT — Judge Steven Rhodes on Friday approved a settlement between Detroit and two global banks over a disastrous financial bet engineered by former Mayor Kwame Kilpatrick’s administration.

Rhodes — who had rejected two previous settlements as too generous for UBS and Bank of America — ruled that the city can pay $85 million to eliminate the pension debt interest-rate transaction known as “swaps.”

The judge said the deal sets the stage for a potential “cram down” — a bankruptcy restructuring plan approved over the objections of retirees and financial companies — and urged creditors to negotiate with the city in confidential mediation sessions.

“The message is that now is the time to negotiate,” Rhodes said.

Rhodes scolded Detroit bankruptcy parties for waging an “orchestrated public relations campaign,” saying that negotiating in public is “counterproductive.”

“This bankruptcy is not about who wins in the court of public opinion,” he said.

The judge put aside his misgivings that the original Kilpatrick swaps deal was “likely” illegal, saying the new settlement was acceptable to allow Detroit to escape a $288 million obligation. He said he “commends” Detroit and the banks for reaching an “entirely reasonable” deal.

Rhodes had rejected two previous settlements of $230 million and $165 million.

That means the judge saved the city more than $200 million in payments that otherwise would have gone to the banks. Now, Detroit can pay off the swaps gradually.

Rhodes endorsed Detroit emergency manager Kevyn Orr’s bid to exit bankruptcy by Oct. 15.

“The settlement agreement is quite likely to be the fastest, surest and least costly way for the city to achieve that goal,” Rhodes said. “The record supports that judgment.”

With the judge’s approval, the banks have agreed to vote in favor of Detroit’s bankruptcy restructuring plan, potentially giving the city an avenue to force other creditors to accept the deal.

The swaps were brokered by Kilpatrick’s administration in 2005 and 2006 to secure a steady interest rate of 6 percent on a $1.4 billion pension debt loan. The bet soured when U.S. interest rates plummeted, sticking the city with a $50 million-per-year bill.

In 2009, Detroit pledged its casino tax revenue as collateral on the swaps, jeopardizing the city’s most dependable source of cash.

Rhodes had questioned the legality of the collateral pledge because the Michigan Gaming Act limits the way casino taxes can be used.

Nonetheless, he ruled “it is beyond serious dispute” that the city can strike a settlement even if the lien might have been invalid.

Orr testified that the city was close to filing a lawsuit against the banks, but eventually reached a deal he considered acceptable to avoid a risky and costly legal battle.

Rhodes agreed that it would take too much time and money for the city to fight the banks.

But several major creditors — including the city’s retiree committee, several European banks and bond insurers Syncora and Financial Guaranty Insurance — objected to the settlement.

Photo: ifmuth via Flickr