| July 25
July 25 Detroit released a revised debt
adjustment plan on Friday that details the role of a
post-bankruptcy monitor and sets up a reserve fund to possibly
enhance recoveries for certain creditors.
The fifth revision of the plan filed in U.S. Bankruptcy
Court creates a litigation trust related to Detroit's lawsuit
seeking to void $1.45 billion of pension certificates of
participation (COPs) sold in 2005 and 2006.
Should Detroit prevail in the suit, money the city would
have had to use to pay off the debt would instead be divvied up,
with 65 percent going to the voluntary employees' beneficiary
associations (VEBAs) set up for city retiree healthcare costs
and 20 percent going to limited-tax general obligation
bondholders. A class of miscellaneous claims would receive the
remaining 15 percent.
U.S. Bankruptcy Judge Steven Rhodes, who has yet to take up
substantive issues in the COPs lawsuit, plans to start a
confirmation hearing on Detroit's plan Aug. 14.
Syncora Guarantee Inc and Financial Guaranty
Insurance Co, which insure payments on the COPs, have
not settled with the city and face proposed minimal recoveries
as a result.
The revised plan to deal with the city's $18 billion of debt
sets a pecking order for unsecured bond claims with
unlimited-tax general obligation bonds getting the biggest
recovery at 74 percent. Under that deal, recoveries for claims
involving limited-tax GO bonds (LTGO) and the pension COPs must
Ambac Assurance Corp, a LTGO creditor, said earlier on
Friday that if Detroit fails to void the COPs, its recovery
would remain at 34 percent, and if there is a COPs settlement it
may get a partially increased recovery.
Before the recently finalized settlement, Ambac and fellow
LTGO creditor BlackRock Financial Management had voted against
the bankruptcy plan, according to ballot results on Monday.
After the settlement, they both officially sought to change
their votes to accept the plan.
PLENTY OF MONITORING
The revised plan also gave a glimpse into what life could
look like after the city exits the largest municipal bankruptcy
in U.S. history with a court-appointed monitor.
The document describes an individual whose "sole role and
responsibility will be to evaluate the city's ongoing compliance
with the plan and the confirmation order and to report to the
bankruptcy court on such matter on a periodic basis in writing."
That will include filing quarterly reports on distributions,
reserves, the status of bond settlements and litigation, the
state of the exit financing, payments under debt instruments,
and the carrying out of the "grand bargain" meant to protect the
city's art collection while easing pension cuts for Detroit
The reports will also include the health of the retirement
systems and pension funding levels. The bankruptcy court would
be able to call conferences and request additional reports.
Under state law, the city will also have a financial review
The plan monitor will be an officer of the court with
immunity from lawsuits and can subpoena information, according
to the filing.
The plan emphasizes that the monitor shall be a neutral
party who has not been appointed or elected to Detroit or
The preferred candidate would have finance experience with
municipalities with at least $250 million in annual revenues.
The monitor should also have experience in complex financial and
(Reporting by Karen Pierog in Chicago and Lisa Lambert in
Washington; Editing by David Gaffen and Lisa Shumaker)