Detroit To Default Today, "Shared-Sacrifice" To Follow

Tyler Durden's picture

And so the next casualty of the inevitable municipal collapse appears, which is, as expected, that one-time symbol of all that was right with a (once upon a time) manufacturing America, having since been replaced with the anti-symbol of all that is broken: Detroit.


And, true to from in the New Normal America, where the "fairness doctrine" rules supreme under Big Brother's watchful eye, the premise of the upcoming glorious recovery is a well-known one: "the shared-sacrifice." To wit: "The City currently faces approximately $17 billion in total liabilities. Detroit is insolvent and cannot meet its financial obligations without a significant restructuring.  Mr. Orr's plan provides for shared sacrifice among all creditor groups – from Wall Street and Main Street consistent with their legal rights – in order to return Detroit to a sustainable financial foundation and to permit much-needed reinvestment in the City." The punchline: "Detroit's road to recovery begins today"... By defaulting.

Full release:

Emergency Manager Presents Plan to Secure a Viable, Strong Detroit

Focus is to Improve Delivery of Basic Services to 700,000 Detroit Residents
Detroit will Honor Pay, Medical and Vacation Obligations to Current Employees
Plan Provides for Shared Sacrifice Among All Creditor Groups to Return Detroit to Sustainable Financial Foundation and Permit Reinvestment in City
Negotiations Starting Now - Emergency Manager and His Advisers Are Moving Forward with Discipline, Speed and Efficiency of a Corporate Restructuring

Kevyn Orr, the Emergency Manager for the City of Detroit, today presented to the City's creditors a plan that outlines the required steps to secure a viable, strong Detroit.  The focus of the proposal is to ensure that the City improves the delivery of basic services -- fire and police protection, functioning street lights, regular and reliable garbage collection, blight removal and enhanced emergency medical services -- to the 700,000 people who live in Detroit.

The City currently faces approximately $17 billion in total liabilities. Detroit is insolvent and cannot meet its financial obligations without a significant restructuring.  Mr. Orr's plan provides for shared sacrifice among all creditor groups – from Wall Street and Main Street consistent with their legal rights – in order to return Detroit to a sustainable financial foundation and to permit much-needed reinvestment in the City.

"Detroit's road to recovery begins today," said Mr. Orr.  "Financial mismanagement, a shrinking population, a dwindling tax base and other  actors over the past 45 years have brought Detroit to the brink of financial and operational ruin.  We cannot repeat the mistakes of the past -- the City, its region and the country deserve better.  Our plan is bold because aggressive action is required to get Detroit back on its feet and improve the quality of life for the people who call Detroit home.  

"Today is a new day and we have presented a plan that outlines a comprehensive roadmap for ensuring basic services are delivered to our citizens while aligning our obligations with the reality the City confronts.  My team and I hope Detroit's creditors and constituents recognize that compromise and shared sacrifice are required for a better, more sustainable future for Detroit and its citizens."

As part of its plan, Detroit is in the beginning of a moratorium on all debt service payments for unsecured funded debt, which will begin with the next payment to holders of Certificates of Participation due June 14, 2013.  The City has made this decision in order to conserve cash so that it can continue to provide essential services to its citizens.  Detroit also will continue to honor its pay, medical and vacation obligations to its current employees and maintain its current vendor contracts for essential goods and services.

Mr. Orr and his advisers have started discussing the plan with Detroit's creditors, and they will move forward with the discipline, speed and
efficiency of a corporate restructuring.  They are committed to negotiating in good faith with all constituent groups to pursue consensual agreements.  The team also is focused on pursuing a restructuring that protects and promotes the long-term viability of Detroit and the basic well-being of its citizens. 

Mr. Orr and his advisers will work to maximize recoveries for creditors within the City's means, while providing pension and health insurance benefits that are reasonable and fair.  These changes will allow essential reinvestment in the City to improve the lives of its citizens for decades to come.

The plan presented today can be accessed in the Emergency Manager section of Detroit's website at  It identifies the sacrifices the City is seeking to ensure its future viability.  The plan proposes the following with respect to certain creditor groups:

  • The Emergency Manager is proposing to treat the City's obligations of similar priority in roughly the same manner so as to provide relative equality of treatment as the Emergency Manager addresses the City's staggering legacy liabilities.
  • Holders of secured debt will receive treatment commensurate with the value of their collateral.  The City's largest secured bond debt would be restructured with new bonds that respect the valid security interests of the bondholders, or otherwise as agreed by the parties.
  • The City's unsecured bonds and other unsecured obligations (including unsecured General Obligation bond debt, pension certificates, the pensions' underfunding claims and retiree healthcare claims) will receive their pro rata portion of $2 billion face amount nonrecourse participation notes, payable as the City's financial circumstances improve.  Principal paydowns will occur at certain intervals and will be based upon the City's
    receipt of currently unbudgeted sums related to asset values and improved City revenues.
  • The plan proposes to modify pension benefits consistent with available funding.
  • The plan also proposes to modify retiree health insurance, with many retirees obtaining benefits from Medicare or the healthcare exchanges under the Patient Protection and Affordable Care Act.
  • A follow-up meeting with the City's unions and retirees will be scheduled in the near term to explain the details of revised pension and  healthcare benefits.

Mr. Orr and his advisers also want to make sure that the restructuring achieved by Detroit is sustainable and leads to a permanent revitalization of the City.  Many of the planned revitalization efforts will take years to complete.  In exchange for the painful sacrifices from creditors, Mr. Orr and his team will insist that structures are put in place to ensure that the restructuring initiatives are continued and that fundamental changes are not undermined.  Toward this end, the Emergency Manager expects to adopt oversight structures that have been used successfully in other cities, including New York City, to ensure that reforms are sustainable and long-lasting.

"The City and its creditors and constituents will have worked too hard and sacrificed too much for the gains of the restructuring to go for naught," said Mr. Orr.  "We will need an oversight structure to ensure that the tough decisions and the compromises we make today are sustainable and allow Detroit to become a vibrant and growing American city once again.  We look forward to our continued discussions with the City's creditors and to a brighter future for Detroit and all of its citizens."

Miller Buckfire & Co., Jones Day, Ernst & Young LLP and Conway MacKenzie Inc. are advising the City of Detroit in its restructuring.

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Clueless Economist's picture
  • "The plan also proposes to modify retiree health insurance, with many retirees obtaining benefits from Medicare or the healthcare exchanges under the Patient Protection and Affordable Care Act."
  • you mean the taxpayers will be paying for thE retiree's health insurance Mr Orr??? 
  • Herd Redirection Committee's picture

    Is it because you do not have money, or else?  (referencing obscure video posted above)

    fourchan's picture

    i live here and this place is fucked.

    Blano's picture

    I bailed last year and never looked back.  

    I hit the Ohio line about 7:30AM and said "good riddance."

    Devils Advocate's picture

    I also live in the area...The city is f'd and it brings a smile to my face that this is happening....Now the countdown till we get the headline.  America Defaults!!!!

    Dead Canary's picture

    Hey gang, we don't need to default. We can put on a show!

    StychoKiller's picture

    Meh, the "gang" is most of the problem.  The city "promised" unrealistic pensions and benefits to public employees, based on an assumption of continued population/tax revenue growth.  Guess what, the population delta is 800,000 - 1.5Million = -700,000 (ouch!)

    smlbizman's picture

    i see an absolute perfect plan that nobody will challange. they can probably furlough most of the court system that would handle the challanges to this perfect plan. .now i have to get back to running the titanic....

    Panafrican Funktron Robot's picture

    Lets all remember realized vs. unrealized losses re: bank/fund balance sheets.  Creditors are going to reject this plan, Detroit will go BK, and creditors will continue to pretend a zero haircut scenario for a while longer.  

    marathonman's picture

    I'm just wondering how much of the MBS' the Fed is buying every month are sub-primes in places like Detroit, Cleveland, Chicago's south side, and various and sundry other post-industrial hell holes.  Good thing the Fed is keeping those TBTF banks whole for worthless real estate bonds and letting us eat the inflation and pay higher taxes.  Oh oh say can you see by the dawn's early light?  It gets me feeling all patriotic.

    g'kar's picture

    Decades of left wing Union controlled Democrat welfare spending fools and the fools that kept voting them in. Give'm a bucket and let them bail themselves out.

    Taffy Lewis's picture

    Where's Trav777 when you need him?

    MachoMan's picture

    busy burning crosses and wearing pointy sheets...

    smlbizman's picture

    how could such an esteem group fail....i cant pu tmy finger on it but it seems the same theme runs through way to much of our govt. in charge...with the same results...

    Mentaliusanything's picture

    Simply put, All Governments must live within MY MEANS.:........ even those outdoor farm helper types.

    (just know im banned)

    auntiesocial's picture

    job creators my left testicle. if our government wanted to create good jobs in Detroit, they would lower the standards on making vehicles and allow the US to produce these 40 mpg cars we can export. what a crock. 

    maskone909's picture

    i really just dont get how a city can default.  its really disturbing.  how is it possible to missmanage money to the extent that they have.  insane

    Citxmech's picture

    Well, when you finance projects you can't afford through bonds at ridiculous interest rates, promise insane pensions for mundane low-level positions, and then experience mass-flight, unemployment, and economic devastation through outsourcing - it has a way of fucking with your balance sheet.  This is why voting for projects without funding in-hand is recipe for disaster (California, are you listening?).

    What I find completely hysterical is that last week CNB$ has a piece on it now being the time to get into muni bonds for fks sake.



    MachoMan's picture


    BINGO.  This is the issue...  there are only so many beasts of burden in the barnyard...  if you overwork (tax) them, then they lay down or run away...  So long as you can keep attracting mules to the farm, then you can keep up the nonsense...  once you fail to attract new mules, it's over...  the city and everyone around the city has leveraged expected tax collections to the gills...  they've already spent years in advance...  once it becomes apparent these won't be collected, the whole thing falls in on itself.

    RockyRacoon's picture

    Meredith Whitney is right... just early.

    Don Diego's picture

    Since diversity is America's greatest strength, I cannot understand why Detroit is so deep in trouble.

    StychoKiller's picture

    Hmm, apparently you can't just "swipe yo EBT" card to pay yer taxes, whocouldanode?

    Colonel Walter E Kurtz's picture

    Very slowly, then all at once! (kudo to the originator)

    max2205's picture

    Well, at least we know now how far the CAN can be kicked before it can't


    1960 to 2013 .... 53

    mofreedom's picture

    40 mpg?  how about cool fast cars that are affordable.

    Dead Canary's picture

    I grew up in the 50's.




    Umh's picture

    It's to crowded, no one really wants it and I can't afford them.

    CPL's picture

    You can have both...and 40 mpg is a starting point.  Want to see what guys with too much garage space do with their time.  I believe a couple of guys managed to get a project up and over 100 mpg on an old POS chevy firefly for a guy that delivers pizza to the point that when he drives the car for work the car pays him in savings.  Any case check it out, think performance + elbow grease = efficiency and lower TCO.


    Parrotile's picture

    Better look to the Far East. Hyundai and KIA both produce popular (i.e. trendy) very quick family cars that easily beat 40 MPG.

    Sod it - the Diesel Kia Carnival ("Sedona" in the US) easily manages 46-48 MPG in an EIGHT seater MPV! Not exactly slow either (as I found out when I hired one!)

    That's a very hard game of "catch-up" to be playing, especially when these Manufacturers are wiping the board with the competition (see who'se getting the greatest increase in European market share - it's not the likes of Peugeot / Renault / Mercedes / BMW!)

    King Nothing's picture

    What difference, at this point does it make?

    Chuck Walla's picture

    DETRIOT! The poster child for Progressive Ideas and Politics!


    Promethus's picture

    Such talk is an Obamanation.

    Promethus's picture

    This will be recovery summer for the motor city.

    drchris's picture

    There was a lot of talk about QE Muni a few years back. Maybe it will be back on the table.

    Meat Hammer's picture

    I love it!  The all Americans must share in the sacrfice assholes truly meant the productive class would have to sacrfice for the non-productive class...aka the takers.  But it's actually they themselves that will have to sacrifice in order to pay off the politicians' (who promised them all the goodies paid for by the other guy in the first place) banker friends.  

    Poetic justice, bitchez.

    SpiceMustFlow's picture

    I just wanted to let you know I've renamed my cock Meat Hammer thanks to you

    Meat Hammer's picture

    Good for you, Spice.  Bitches love meat hammers.   

    Son of Loki's picture

    I thought it was called, "The Monkey"... always getting into trouble.

    Also, as in, "Spank the Monkey."

    dojufitz's picture

    I call mine "Nano' - 1 billionth of an inch!

    mofreedom's picture

    hey, you didn't default that.

    Andy_Jackson_Jihad's picture

    "There was a lot of talk about QE Muni a few years back. Maybe it will be back on the table."

    For Detroit they need to find an official acronym for VE.  So the unofficial one can be Very Ebony.

    silverserfer's picture

    not in Duhtroit. They get DHS regiments and crowd control cannons.