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
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.
(Reporting By Karen Pierog; Editing by Diane Craft)