(Reuters) - Detroit’s nearly 16-month odyssey through bankruptcy reached the finish line on Friday, when a federal judge ruled that the city’s plan for shedding debt and investing in its future is both feasible and fair.
* The ruling by Judge Steven Rhodes, who is overseeing the historic case, came more than two months after the start of a hearing to determine whether the plan was fair to creditors and feasible for the city to implement.
RICHARD CICCARONE, HEAD OF MERRITT RESEARCH SERVICES, HIAWATHA, IOWA:
“It’s a milestone for municipal credit risk. If we look back over the past fifty years, this stands out as evidence that municipal bonds are not risk free.
“Even though the odds are heavily in favor of repayment, at some point in time when there is a deterioration of significant proportions, both in the economic base as well as the financial liabilities, a city can go bust…. The legacy cost of a city which was once had a robust economy can linger on long after the factories are no longer operating. The pension liabilities we have today still pose a significant risk to creditors, which bear the burden of better times in the past, and those are the ones that will be on the radar for monitoring in the future.”
“With Judge Rhodes’s historic decision, Detroit moves further along the path toward financial stability and success as a viable and attractive place to live, work and invest. My team and I are pleased that Judge Rhodes agrees that the Plan is the best way for the City to resolve its financial difficulties and remain on solid financial footing.”
TOM METZOLD, CO-DIRECTOR OF MUNICIPAL INVESTMENTS, EATON VANCE, BOSTON:
“The longer you stay in bankruptcy the more it costs the town in terms of legal fees and consulting fees. (Detroit) is different than California. When you take years and years to extricate yourself, that money could have been put to such better use. As expensive as Detroit was, I think it was a pretty nice blueprint for what can happen when common sense and reasonable people come to the table and get a plan done…. Nobody was one-hundred percent satisfied. Everybody took a little bit of a haircut here or there. That’s an indication it was a well-designed plan.”
“I think there are two things - on a public policy basis, its not been a very edifying endeavor but I think judge Rhodes did the best job he could. I’m glad its done... but on a larger picture you wonder if this trip was really necessary... no-one has painted a picture for me of where Detroit goes from here.”
“The hard work really starts now. This was a piece of work, the financial compromise. But now the city needs to be seriously reinvigorated so that it doesn’t find itself in a similar situation a number of years from now. It did cut a fair amount of obligations on a go forward basis but it still has a fair amount of debt, of liabilities, of pension obligations, of retiree benefits. And it clearly has some demographic issues, it’s got some socio-economic issues. It has had in the past corruption issues as it relates to government. Therefore, it’s really the operational rehabilitation of the city that begins now.”
TINA BASSETT, SPOKESPERSON, THE GENERAL RETIREMENT SYSTEM OF THE CITY OF DETROIT:
“The General Retirement System’s Board of Trustees are relieved that this turbulent period in Detroit’s history and in our pensioners lives has come to conclusion... Our retirees made the most difficult decision to support this plan. It was done with personal sacrifice accompanied by great disappointment in a legal system in which they believed their pensions were protected by the Michigan Constitution.”
MARY BARRA, CHIEF EXECUTIVE OFFICER, GENERAL MOTORS, DETROIT:
“Judge Rhodes’ decision is historic and a validation for everyone who has been committed to Detroit. Working together, we can transform the city and you can see clear progress in the restoration of downtown, the entrepreneurs who are flocking here, the massive building projects getting underway and the work being done to improve education, neighborhoods and city services.”
“Chrysler Group believes in the City of Detroit and its people, and we remain committed to playing a positive role in its continued revitalization.”
“Detroit’s successful emergence from bankruptcy is another sign of the positive momentum gathering force throughout our region. Ford has always been there for Detroit, and we will continue to invest through financial support, philanthropy and volunteerism to ensure that not just the city, but the entire region reaches its full potential.”
“We are committed to developing a strong partnership with the City as we work together to revitalize Detroit. Under our plan, unused and abandoned property would ultimately become a vibrant, tax-generating asset to the City. Syncora is proud to have the opportunity to be part of the City’s resurgence going forward.”
TY SCHOBACK, SENIOR MUNICIPAL ANALYST, COLUMBIA MANAGEMENT INVESTMENT ADVISERS, MINNEAPOLIS:
“Chapter 9 is proving to be an ineffective tool to deal with underfunded pensions, because in Stockton, Calpers was completely unimpaired, and in Detroit… there was very minimal impairment to the pensioners, especially with respect to various types of bondholders. Regardless of what one thinks their bond security or bond indenture states and entitles them to legally, the reality is that even within the confines of a federal courthouse with respect to Chapter 9, political influence still reigns, and local pensioners are treated better than outside bondholders or creditors…. Fair and reasonable doesn’t equal equitable treatment…. The political reality is bondholders are going to be effectively subordinate to pensioners even in bankruptcy.”
“This is merely a starting point for Detroit. Just because they’ve gone through bankruptcy and have now exited, it doesn’t mean all their problems are behind them. Nothing has changed economically.”
“The Chapter 9 route has proven costly for Detroit, as it has for so many others, and its effectiveness at righting its ship upon emergence from bankruptcy remains in question. As Detroit enters post-bankruptcy, it will be challenged to generate cost savings through operational restructuring while addressing a backlog of infrastructure and other needs.” “Although the roadmap is set out in the plan of adjustment, it will still likely be difficult for the city to continue making the kinds of changes that will lead to the cost savings it needs to be operationally balanced. We believe that achieving this is the only way that Detroit will be able to stay out of bankruptcy again in the future.”
JULIET M. MORINGIELLO, PROFESSOR OF LAW, WIDENER LAW, HARRISBURG, PENNSYLVANIA
“This is a huge step in the right direction for Detroit. Detroit went through decades and decades of decline and in order to pull out of that decline it had to do something about all of its debt.
“I was particularly interested in what Judge Rhodes had to say about the importance of the Detroit Institute of Art to the city. There is a difference of opinion as to whether or not any of the art should have been sold. But the city did monetize the art, that’s part of the grand bargain, they got money from the foundations and the state to keep the art in Detroit.”
KAROL DENNISTON, PARTNER IN PUBLIC FINANCE LAW, SQUIRE PATTON BOGGS, SAN FRANCISCO:
“The ruling is an example of the private sector and the state coming together to save a municipality. The grand bargain was a pretty phenomenal, creative approach to making something work.”
Municipal bond team; +1-646 223-6190