People's Lawyers Argue For Restraining Order to Stop Detroit Water Shut-offs
By Steven Church - Sep 2, 2014
Bloomberg
Creditors can’t force Detroit to sell its art collection to cover their claims, the city (actually Jones Day on behalf of the emergency manager and Gov. Snyder) said on the first day of a trial over its proposal to eliminate more than $7 billion in debt in the biggest U.S. municipal bankruptcy.
“Unsecured creditors have no rights” to be paid with art proceeds or any other city asset, said Bruce Bennett, a lawyer for Detroit, attacking the main complaint by bond insurers who may be forced to make up investor losses imposed by the plan.
Municipal debt investors should have known when they lent the city money that the only way to force Detroit to pay them was to sue and win a court order raising property taxes, said Bennett, a partner at the Jones Day law firm. That couldn’t be done without driving landowners away, he said.
U.S. Bankruptcy Judge Steven Rhodes has set aside seven weeks to hear arguments and evidence for and against the plan before he decides whether it’s feasible and fair. The case will test an unusual partnership among the city, wealthy donors and Michigan lawmakers, who devised a “grand bargain” to shore up Detroit’s public pension system. In exchange, the city agreed not to use its collection of masterpieces to pay creditors.
Related: Detroit Brings Bankruptcy Plan to Court With Billionaires
Detroit filed for bankruptcy more than a year ago, saying decades of decline left it unable to provide basic services to its almost 700,000 residents.
Imposing Cuts
Imposing cuts on bondholders, retired city workers and other creditors is the only way to stabilize finances and raise money to revive decaying neighborhoods, Bennett told Rhodes.
“I’ve already said that the city is done making bad deals,” Rhodes said before opening arguments. The judge immediately said he regretted sounding like an advocate and joked that his comments should be ignored. “I can see the headlines.”
The start of the trial was subdued compared with the opening days of the case last year, when protesters, including many city workers and retirees, chanted and waved signs condemning Michigan Governor Rick Snyder, a Republican, and Kevyn Orr, the emergency manager he appointed to run the city.
Since then, almost all of the city’s unions have signed onto a deal that gives them most of their monthly pension checks and funds a new program to replace their retiree health-care benefits.
Bond Investors
Some bond investors who hold tax-backed debt have also settled with the city, along with investors that hold water and sewer debt.
As many members of the media came to watch the opening of the trial as did members of the public. Reporters crowded into two media rooms in the federal courthouse to watch the proceedings through a video link. The main courtroom was filled with lawyers for the city, creditors, the unions and the state.
Current and former city employees, as well as investors, will be forced to take less than the $10.4 billion they are owed if Rhodes approves the plan, while some bondholders will recover as little as 11 percent of their claims. Bond insurers Syncora Guarantee Inc. and Financial Guaranty Insurance Co. oppose the proposal, saying it doesn’t put similar claims on an equal footing.
Before the hearing started late this afternoon, Rhodes heard disputes over the city’s water service and whether investment banker Kenneth Buckfire can testify.
Epidemic Risk
Alice Jennings asked Rhodes to force Detroit to restore water service to about 5,000 customers who failed to pay their bills. Cutting off water risks an epidemic “that could sweep through the city,” Jennings told the judge.
Rhodes said he would decide later whether to order the city to halt the shutoffs temporarily while the lawsuit filed by Jennings goes forward.
The judge agreed that Buckfire can’t testify about how much creditors would recover if the plan is rejected and the bankruptcy dismissed. Rhodes said the testimony wasn’t needed.
Bennett is scheduled to finish his opening arguments tomorrow. Syncora, Financial Guaranty Insurance and other plan opponents will follow before the city calls the first of its more than 25 witnesses.
The city may finish presenting its case by early October, one of its attorneys, Greg Shumaker, told Rhodes.
The case is In re City of Detroit, 13-bk-53846, U.S. Bankruptcy Court, Eastern District of Michigan (Detroit).
To contact the reporter on this story: Steven Church in Detroit federal court at schurch3@bloomberg.net
To contact the editors responsible for this story: Andrew Dunn at adunn8@bloomberg.net Michael Hytha
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| National demonstration in solidarity with Detroit on July 18, 2014. |
Bloomberg
Creditors can’t force Detroit to sell its art collection to cover their claims, the city (actually Jones Day on behalf of the emergency manager and Gov. Snyder) said on the first day of a trial over its proposal to eliminate more than $7 billion in debt in the biggest U.S. municipal bankruptcy.
“Unsecured creditors have no rights” to be paid with art proceeds or any other city asset, said Bruce Bennett, a lawyer for Detroit, attacking the main complaint by bond insurers who may be forced to make up investor losses imposed by the plan.
Municipal debt investors should have known when they lent the city money that the only way to force Detroit to pay them was to sue and win a court order raising property taxes, said Bennett, a partner at the Jones Day law firm. That couldn’t be done without driving landowners away, he said.
U.S. Bankruptcy Judge Steven Rhodes has set aside seven weeks to hear arguments and evidence for and against the plan before he decides whether it’s feasible and fair. The case will test an unusual partnership among the city, wealthy donors and Michigan lawmakers, who devised a “grand bargain” to shore up Detroit’s public pension system. In exchange, the city agreed not to use its collection of masterpieces to pay creditors.
Related: Detroit Brings Bankruptcy Plan to Court With Billionaires
Detroit filed for bankruptcy more than a year ago, saying decades of decline left it unable to provide basic services to its almost 700,000 residents.
Imposing Cuts
Imposing cuts on bondholders, retired city workers and other creditors is the only way to stabilize finances and raise money to revive decaying neighborhoods, Bennett told Rhodes.
“I’ve already said that the city is done making bad deals,” Rhodes said before opening arguments. The judge immediately said he regretted sounding like an advocate and joked that his comments should be ignored. “I can see the headlines.”
The start of the trial was subdued compared with the opening days of the case last year, when protesters, including many city workers and retirees, chanted and waved signs condemning Michigan Governor Rick Snyder, a Republican, and Kevyn Orr, the emergency manager he appointed to run the city.
Since then, almost all of the city’s unions have signed onto a deal that gives them most of their monthly pension checks and funds a new program to replace their retiree health-care benefits.
Bond Investors
Some bond investors who hold tax-backed debt have also settled with the city, along with investors that hold water and sewer debt.
As many members of the media came to watch the opening of the trial as did members of the public. Reporters crowded into two media rooms in the federal courthouse to watch the proceedings through a video link. The main courtroom was filled with lawyers for the city, creditors, the unions and the state.
Current and former city employees, as well as investors, will be forced to take less than the $10.4 billion they are owed if Rhodes approves the plan, while some bondholders will recover as little as 11 percent of their claims. Bond insurers Syncora Guarantee Inc. and Financial Guaranty Insurance Co. oppose the proposal, saying it doesn’t put similar claims on an equal footing.
Before the hearing started late this afternoon, Rhodes heard disputes over the city’s water service and whether investment banker Kenneth Buckfire can testify.
Epidemic Risk
Alice Jennings asked Rhodes to force Detroit to restore water service to about 5,000 customers who failed to pay their bills. Cutting off water risks an epidemic “that could sweep through the city,” Jennings told the judge.
Rhodes said he would decide later whether to order the city to halt the shutoffs temporarily while the lawsuit filed by Jennings goes forward.
The judge agreed that Buckfire can’t testify about how much creditors would recover if the plan is rejected and the bankruptcy dismissed. Rhodes said the testimony wasn’t needed.
Bennett is scheduled to finish his opening arguments tomorrow. Syncora, Financial Guaranty Insurance and other plan opponents will follow before the city calls the first of its more than 25 witnesses.
The city may finish presenting its case by early October, one of its attorneys, Greg Shumaker, told Rhodes.
The case is In re City of Detroit, 13-bk-53846, U.S. Bankruptcy Court, Eastern District of Michigan (Detroit).
To contact the reporter on this story: Steven Church in Detroit federal court at schurch3@bloomberg.net
To contact the editors responsible for this story: Andrew Dunn at adunn8@bloomberg.net Michael Hytha
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