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
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
"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.
Hold-out creditors have pushed to sell or monetize the art,
which was valued at $8 billion in one appraisal, to improve
(Reporting By Karen Pierog; Editing by David Gregorio)