DETROIT (Reuters) - A U.S. Bankruptcy Court judge on Monday approved a key supporting document for Detroit’s plan to adjust $18 billion of debt and exit the biggest municipal bankruptcy in U.S. history.
Judge Steven Rhodes ruled that the latest version of the so-called disclosure statement Detroit filed with the court earlier on Monday contains “adequate information” for creditors. He also prohibited the city from making anything but “non-substantive or immaterial changes” to the document.
The approval marks another hurdle cleared by the bankrupt city as it plans by May 12 to begin soliciting votes on the debt plan from its thousands of creditors.
Kevyn Orr, Detroit’s state-appointed emergency manager, has been reeling in agreements over the last several weeks with key creditors including the city’s two retirement systems, retired worker associations and bond insurance companies.
In the latest version of the disclosure statement, Detroit revealed that it reached five-year agreements with two of its police unions.
While the Detroit Police Lieutenants and Sergeants Association and the Detroit Police Command Officers Association agreed on terms governing pensions, wages and healthcare for their members, the city’s bigger public safety unions - the Detroit Police Officers Association and Detroit Fire Fighters Association - have not.
Still, in the disclosure statement, the city outlined pension proposals for the two holdout unions that were less generous than the firm agreements.
The city would make greater contributions to the command officers and sergeant and lieutenants’ pensions and allow them to retire at younger ages than the firefighters and police officers. Members of the two settling unions would get 1 percent cost of living adjustments for their pensions while members of the holdout unions would see none.
All the deals involving pensions for current and retired city workers hinge on $816 million the city would tap to aid its retired workers. Michigan Governor Rick Snyder has asked the state legislature to approve $350 million of that amount, while the rest would come from philanthropic foundations and the Detroit Institute of Arts, which pledged the money to avoid a fire sale of art works due to the bankruptcy.
Michigan could make its contribution in two ways: spread out over 20 years or in a single payment. The “lump sum” would actually be a little under $195 million, which is the net present value of the pledged amount at a discount rate of 6.75 percent, according to Sara Wurfel, Snyder’s press secretary.
“This is one of the key areas - funding source and all related details - we’ll be discussing with the legislature over the next days and weeks,” said Wurfel.
Previously announced settlements over interest-rate swaps and the treatment of voter-approved unlimited tax general obligation bonds are included in the latest filing. However, other matters that have been subject to court-ordered mediation are not and those include the treatment of limited-tax GO bonds and the creation of a regional water authority.
Reporting by Bernie Woodall in Detroit, additional reporting by Karen Pierog in Chicago and Lisa Lambert in Washington; editing by James Dalgleish and Matthew Lewis