April 1 Detroit on Tuesday missed a second payment on its outstanding general obligation bonds as the city continues to face opposition from major creditors to its plan to restructure $18 billion of debt and exit municipal bankruptcy.
Bill Nowling, a spokesman for Detroit emergency manager Kevyn Orr, said the city does not intend to make the $47.6 million annual principal and semi-annual interest payment on the bonds that was due on Tuesday. The city has already defaulted on a $9.4 million interest payment on Oct. 1. That action led credit rating agencies to drop the rating on more than $600 million of unlimited and limited tax GO bonds to D, the bottom of the rating scale.
The cash-strapped city filed the largest municipal bankruptcy in U.S. history in July to deal with a mountain of debt and scores of creditors. A December ruling by a U.S. Bankruptcy Court Judge Steven Rhodes, who concluded Detroit was bankrupt is being appealed by the city's pension funds, unions and retiree groups.
The Sixth Circuit U.S. Court of Appeals on Tuesday partially granted Detroit's request that filings in the seven appeals be done in one lead case. At the same time, the appeals court denied a motion that some of the parties made to have the cases fully briefed by the end of May instead of mid-June.
Three bond insurance companies that guaranteed payments on much of the general obligation bonds have sued the city over the default and the diversion of property tax revenue earmarked to pay off bonds that were approved by Detroit voters. Rhodes urged the parties in February to settle. But there has been no settlement announced or ruling issued in the lawsuits.
Detroit's treatment of certain GO bonds as unsecured debt in its bankruptcy case roiled the U.S. municipal bond market, where bonds backed by a government's full-faith and credit pledge have traditionally been considered safe investments.
A revised plan Detroit filed with the federal court late on Monday called for a slightly deeper cut for owners of bonds the city has deemed to be unsecured.
Those investors would stand to recover only 15 percent of their investment, down from 20 percent in the initial plan Detroit filed in February. That would be a cut of 85 percent of their bonds' value.
Proposed cuts to retirement benefits for Detroit's public safety workers were also a bit higher in the revised plan.
Bruce Babiarz, a spokesman for Detroit's police and fire retirement system, said the revised plan is "dead on arrival."
"We believe it is unacceptable and disingenuous to introduce in a (plan of adjustment) a host of issues that have never before been discussed with the pension funds, such as board governance," he said.
Carole Neville, an attorney at law firm Dentons, who represents a court-appointed committee representing the city's retirees, said in a statement that unless the plan is "significantly altered" the committee "has little choice but to oppose this plan and to explore alternative recoveries."
The committee on Tuesday sent subpoenas to the Detroit Institute of Arts and to auction house Christie's demanding extensive documentation of city-owned artwork at the museum and of the appraisal of those works. In December, Christie's, which was hired by Orr, valued the collection at $454 million to $867 million.
Some of Detroit's creditors have been eyeing the museum as a possible source of cash to ease the cuts due to the city's bankruptcy. However, in an effort to stop that from happening, more than $800 million has been pledged by a group of philanthropic foundations and Michigan Governor Rick Snyder to aid Detroit's retirees. Still, that money is contingent on a settlement of pension claims in the bankruptcy.