| NEW YORK, April 10
NEW YORK, April 10 Kevyn Orr, Detroit's
emergency manager, said he has lined up support from enough
creditors of the bankrupt city to force concessions from others,
but doing so would risk the loss of more than $800 million in
funding from the state of Michigan and philanthropic
A deal announced Wednesday with bond insurance companies,
along with a previous deal with two investment banks, could give
Orr authority under Chapter 9 of the U.S. municipal bankruptcy
code to force other creditors to accept payment terms. But a
so-called cramdown would violate a pre-condition of Orr's "grand
bargain" with the state and foundations, which have pledged $816
million to ease pension cuts for retired city workers.
"The concept of a cramdown runs a risk of losing $816
million because I don't have a consensual resolution," Orr told
Reuters in an interview late Wednesday. "So technically do I
have the legal ability to do a cramdown? Yes. But can I exercise
it without losing $816 million? Maybe not."
Orr also rebutted widespread reports that Detroit is
putting the financial health of city pension funds at risk by
seeking to invalidate $1.4 billion of debt Detroit issued nearly
a decade ago in an effort to help the city catch up on
delinquent pension contributions. If the bankruptcy court
approves Orr's move to invalidate the securities, known as
certificates of participation, the ruling would wipe out the
debt altogether, Orr contended.
"If it's void it's void. It can't be resurrected against
somebody else," Orr said. "The city does not pay that debt. The
debt is wiped out. The debt is wiped out, 100 percent."
Orr's comments about the prospects of a cramdown and
invalidation of pension debt came in a wide-ranging, hour-long
interview, in which he also dismissed a valuation of the Detroit
Institute of Art's renowned collection by a bond insurer, said
Detroit almost certainly will operate with oversight from a
financial control board after bankruptcy and said definitively
he will never pursue elective office.
Orr's comments came on a day in which U.S. Bankruptcy Court
mediators announced agreement in a case brought by insurers of
some Detroit bonds. The mediators approved a plan in which
bondholders will receive $287.5 million of $388 million owed.
The payment represents 74 cents on the dollar owed on
voter-approved, unlimited tax general obligation bonds.
With regard to negotiations with other creditors, Orr warned
the city's pension funds, retirees, unions and others that a
cramdown, while unlikely, still remains in his arsenal to get
Detroit through the biggest municipal bankruptcy in U.S.
"Everything is always on the table. I want to be very clear
about that. Every tool at my disposal is always on the table,"
With the bond insurers' case settled, Orr now awaits a
Friday ruling by bankruptcy judge Steven Rhodes on an agreement
with investment banks UBS and Merrill Lynch. Judge Rhodes, who
is overseeing Detroit's case, will decide whether to approve the
city's third try to end costly interest rate swaps with the two
investments banks. Detroit has offered to pay $85 million, down
from earlier proposed deals of $230 million and $165 million
that Rhodes deemed too costly for the broke city.
The swaps turned out to be a bad and expensive bet on
interest rates by the city, which used them to hedge rate risk
on some of the pension debt that Orr is currently trying to
The deal Orr reached with bond insurers on Wednesday may
enable Orr to avoid setting a precedent, laid out in his
original bankruptcy adjustment plan, that would have treated
general obligation bonds as unsecured debt. Orr's original plan
could have set a precedent that would have roiled the municipal
credit markets and potentially made it more difficult for
Detroit to issue bonds in the future.
But Orr acknowledged that his plan to reduce pension
benefits by as much as 34 percent, despite protections in
Michigan's constitution, could yet plow new ground if appeals
courts uphold Rhodes' ruling that federal law trumps the state's
Orr said he has no intention of revisiting the question of
the Detroit Institute of Art's collection. A valuation
circulated Wednesday by bond insurer FGIC Corp. estimated the
collection has a market value up to $2 billion. But the $816
million deal with the state and foundations is contingent on
keeping the DIA collection intact, and Orr said Detroit cannot
be forced by the court to sell any asset.
"As far as I am concerned, we have a proposal on the table
and we're going to stick with it," Orr said.
Detroit's path out of bankruptcy will come with a huge price
tag. Orr commands teams of attorneys and consultants and the
city pays for lawyers for a court-appointed committee
"I hope it's not hundreds of millions of dollars. We have put
money aside, but it's not going to be cheap," he said.
Just the first 75 days of the bankruptcy case Detroit filed
in July resulted in a $13.7 million tab for professional fees
and expenses, according to a February report by a
court-appointed fee examiner. Orr's spokesman said costs had
since grown to about $59 million.
Orr's plan would also free $1.5 billion to fight blight and
improve basic services.
"We're trying to leave them with adequate resources, not
superlative resources," he said. Orr, whose term as emergency
manager ends in September, said he agrees with Michigan Governor
Rick Snyder's idea of a control board to oversee various aspects
of Detroit's finances once he is gone.
"That's the state of the art," he said.
(Reporting By David Greising and Karen Pierog, additional
reporting by Robin Respaut, Dan Burns, Martin Howell, Hilary
Russ, Edward Krudy, Nicholas Brown in New York; Editing by Larry