DETROIT, Sept 3 Detroit's plan to adjust its debt is feasible and fair to creditors, while trying to fix city finances outside of U.S. Bankruptcy Court would lead to a blizzard of litigation, an attorney for the city said Wednesday as he completed an opening argument in the landmark bankruptcy case.
Bruce Bennett, a Jones Day attorney representing Detroit, wrapped up his three-hour opening statement by disputing arguments from creditors who claim the city's plan to adjust its $18 billion in debt is inadequate and should be scrapped.
"We think this is the city's last best chance and we think it will work," Bennett told Judge Steven Rhodes, who on Tuesday began a confirmation hearing on the Detroit plan that is expected to last for weeks.
Detroit, which filed the biggest-ever Chapter 9 municipal bankruptcy in July 2013, has reached settlements with most of its major creditors, including the city's retired workers and two pension funds.
Major objectors to the plan are the insurance companies Syncora Guarantee Inc and Financial Guaranty Insurance Co. Both guaranteed payments on $1.4 billion of pension debt the city is seeking to void, and both are facing recoveries of just pennies on the dollar.
A so-called "Grand Bargain" would tap into $366 million pledged by foundations and $100 million from the Detroit Institute of Arts (DIA)over 20 years, as well as a $195 million lump sum payment from the state of Michigan. The money would be used to ease pension cuts for city retirees and prevent the museum's collection from being sold to pay creditors.
The bond insurers have objected to the lopsided treatment of similarly situated creditors embedded in the city's plan.
Bennett cited complex mathematical comparisons that he said show no more than mild differences in creditor recoveries under the plan.
"We couldn't do any better for the creditors," he said after noting that if Detroit does not reverse its downward spiral, it will not be in a position to pay anything to creditors.
Tossing the case out of bankruptcy court would result in creditors slugging it out in Michigan courts to squeeze money from the cash-strapped city, according to Bennett. He added a team of city consultants will testify that the plan addresses Detroit's many problems.
"The evidence will show Detroit will have a better future after Chapter 9," he said.
Following Bennett, the judge began hearing from supporters of the city's plan, including the DIA.
Arthur O'Reilly, the DIA's attorney at law firm Honigman Miller Schwartz and Cohn, said the city does not have legal ownership of most of the DIA collection because a "great preponderance" of the art was given to the DIA Corp, a non-profit corporation responsible for museum operations. Case law and Michigan's Attorney General both support the DIA's contention that the art work cannot be sold to satisfy the city's debts. A forced sale "would "chill philanthropic giving for generations to come," O'Reilly said.