Bankruptcy In The USSA: Detroit Bondholders About To Be GM'ed In Favor Of Pensioners

Tyler Durden's picture

First, the Obama administration showed during the course of the GM and Chrysler bankruptcy proceedings, that when it comes to Most Preferred Voter classes, some unsecured creditors - namely labor unions, and the millions of votes they bring - are more equal than other unsecured creditors - namely bondholders, and the zero votes they bring. Five years later we are about to get a stark reminder that under the superpriority rule of a community organizer for whom "fairness" trumps contract law any day, it is now Detroit's turn to make a mockery of the recovery waterfall. As it turns out, bankrupt Detroit is proposing to favor pension funds at roughly double the rate of bondholders to resolve an estimated $18 billion in long-term obligations, according to a draft of a debt-cutting plan reviewed by The Wall Street Journal.

The breakdown to unsecured stakeholders would be as follows: 40% recovery for pension funds, 20% for unsecured bondholders - all this to the same pari class of unsecured creditors. Because just like in Europe when cashing out on CDS in insolvent nations is prohibited as it would suggest that the entire Eurozone experiment is one epic farce, regardless of how much "political capital" Goldman Sachs has invested in it, so in the US municipal creditors are realizing that in the worst case scenario, they will be layered first and foremost by all those whose votes are critical in keeping this crony administration in power.

According to the WSJ the plan calls for recovery to be divided among the unsecureds amounting to $4.2 billion, more than the originally planned $2 billion to settle claims which included about $11 billion in unsecured debt, including $6 billion in health and other benefits for retirees; $3.5 billion for retiree pensions; and about $530 million in general-obligation bonds.

There is a possibility that final "math" in the Plan of Reorg is changed before the final draft.

It was unclear from the plan reviewed by the Journal whether the city is using all of the same estimates for the money owed to unsecured creditors in its draft plan. A person familiar with the draft plan said the recovery rate for the pension funds could end lower than the balance sheet shows.


Details of the plan sent to creditors on Wednesday have been kept under wraps as the city and its debtholders continue to talk in closed-door mediation. The city sent its working draft to creditors in the hopes that the plan with a richer payout might spur some of them to settle with the city individually or, in the least, offer their own suggestions toward modifying the overall proposal, according to another person familiar with the matter.


The formal plan is expected to be filed in federal court in Detroit within two weeks, officials said. Creditors will vote on the plan, but the final decision rests with the court.

Still, the probability is that Kevyn Orr has finally gotten cold feet on playing hard ball with the unions. "The proposed plan provides the road map for all parties to resolve all outstanding issues and facilitate the city's efforts to achieve long-term financial health," Detroit Emergency Manager Kevyn Orr said in a statement Wednesday. Mr. Orr's spokesman declined Thursday to comment on the plan's details. Several creditors, who were opposed to the city's early plans to offer creditors, including bondholders and pension funds, less than 20 cents on the dollars owed to them, also declined to comment."

One can only imagine the amount of "Steve Rattnering" that must have gone on behind the scenes, and how much more is still set to happen, for such a skewed plan to pass the bankruptcy judge over creditor objections. Which it will once the president makes a phone call.

Then again, with contract law abrogated as was made very clear with this administration's first steps into the "Fairness Doctrine" back in 2009 and the bankruptcy of GM and Chrysler, nothing can, or should, surprise one any more.

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RSloane's picture

The response time for a 911 call in Detroit is 58 minutes, in many cases longer. They can't afford any more cops. But they can afford to pay retired cops their pensions. Once in awhile with crystal clarity we can see where the priorities are.

TruthInSunshine's picture

Gil Hill is relieved.

Inspector Todd: Hey Axel, I'm not takin' anymore of this shit from you. You know how much this little stunt of yours is gonna cost this city?

Axel Foley: I don't think cost is the issue here, sir. I think the issue should be my blatant disregard for proper procedure.

Inspector Todd: You damn right, wise ass! The mayor called the Chief, the Chief called the Deputy Chief, the Deputy Chief just chewed my ass out! You see I don't have any bit of it left, don't you?

Pladizow's picture

I cant wait to get fucked by MYra!

Almost Solvent's picture

Fuck O'Choomo but this is Kevin Orr & the MI Gov. proposing this plan.


The whole system is a fucking epic disaster - can't wait to see them fighting over this shit in Boca Raton :)

Xibalba's picture

If he ends the prohibition on weed I'm voting for him again!





Grande Tetons's picture

If all goes to will not have to vote. He, our leader, will just be there.

At that point getting high will be mandatory. 

ZerOhead's picture

$50 bucks says there will be nothing left for either pensioners or bondhoilders once the lawyers have at it...

CrazyCooter's picture

Who all is in the image at the bottom of the post. I can't figure out who is on the far left, but after that it looks like marx, lenin, stalin, mao, and obama.



ZerOhead's picture

Looks like Moses to me...

dryam's picture

Meredith Whitney won't lose any money over this deal.

knukles's picture

She's a fox, married to a pro boxer...

If they fuck-ola the bond holders, at some point there will be nobody to buy munis meaning the whole fucking charade falls apart.

Until Obie declares everything nationalized

Cloward Piven Foreward

Son of Loki's picture

It's only Fair!

...wait a sec.....what does this forebode for Treazuree bond holders?

Four chan's picture

if you were stupid enough to buy detroit bonds you deserve to be shithammered.


also, those pensioners, are police and firemen, who risked their lives in this most

dangerous city in america, its wrong for them to get fucked, while the bankers

who created the money out of thin air, and zero effort, skate away with a big piece of pie.

LawsofPhysics's picture

I know several firemen and policemen, "risking their lives" is a bit dramatic.  If it's so fucking bad, they can go serve in Afghanistan.

I agree, holding any Detroit debt is insane, but when the municipailites and utility companies leave, then they might start risking their lives considerably more often.  There are always exceptions, but where will the taxes and money come from to pay for all the essential services which are about to get considerably more expensive?  The youth of detroit sure as hell are not working.  Perhaps they will wake the fuck up and execute some fucking bankers.  I won't hold my breath.


by the way, many of those "bondholders" are in fact pension funds.  So good luck with that circular reasoning.

RSloane's picture

Yup Laws. Pension holders and bond holders are not exclusive in this case. Everyone yelling "fuck the bond holders" might as well be yelling "fuck the pensioners".

I have no idea how much money has been set aside for the payment to utility companies and municipality services. The fed gov't spends a lot of money on states to make sure people's lights and heat are not shut off due to lack of payment. Judging by how the city has been run over the years, I don't have a lot of confidence in their possible contingency planning.

Rafferty's picture

Anyone buying Detroilet bonds deserves what he gets.

Duke of Earl's picture

2011 homocide rate of:


Detroit citizens: 49.2

Detroit police: 28.8

Per 100,000 (multiplied the police numbers up)


Seems ordinary citizens are risking their lives more than officers....

RSloane's picture

The average case solving in Detroit is 9% including violent crimes, which means 91% of crimes in Detroit go unsolved.

"Detroit — If more citizens were armed, criminals would think twice about attacking them, Detroit Police Chief James Craig said Thursday. - See more at:"

So here is their police chief urging citizens to arm themselves, which is highly unusual in the current anti-gun environment. Itsn't that a tip off that something is horribly wrong or maybe horribly right for people who can't expect that a 911 call be answered in under an hour?

People sometimes talk about Detroit as if its devoid of a population. While the unions and muni bond holders [often the same person] pick over the leavings, no one is talking about the people who still actually live there. They are planting gardens in once populated areas so they can grown their own food and put some of the abandoned land to good use. Citizens are picking up trash by themselves to keep their streets as clean as possible. Some of them are locking and shuttering abandoned homes themselves to keep kids out of them.

Don't they deserve at least some consideration?

knukles's picture

Most cops I know of, even out here in CA are in favor of the populace arming themselves.
It's the Progressive Politicians that ain't

And on to New Yawk...


From the New Yawk Post (the t is silent) "A total of 334 people were murdered in New York City last year, only 29 of them by strangers.  That's down from more than 2,245 murders in 1990, and the lowest number of murders in the city on record"   Good luck Mr Mayor DeBlowzio
I'll take the over.
Miffed Microbiologist's picture

The problem I have with that stat Knicks is that a murder is only classified as such when the person actually dies. Trauma care today in New York (I am assuming) is much better than in the 1990s due to advances in technology. What would be interesting to see for me is if the rate of shooting and stabbings have decreased as well to get a more accurate assessment if crime has decreased.


Rafferty's picture

"Don't they deserve at least some consideration?"


Plain answer, NO:  They're all members of thr Free Shit Army and kept voting in the officials and politicians who ruined the city.

rockface's picture

Most of them voted for this over and over and apparently finally got what they wanted.  People that didn't want it moved on long ago.

Swarmee's picture

What about all the asshats who made unfunded promises over the years to these pensioners? Absolutely no legal reprecussions. Ok fine, that how the rules were written at the time, but what are we doing to change it going forward? Nothing that I've seen or heard. This is how you buy votes with the money of the unborn, and it shouldn't be allowed.
People agreed to the terms of employment with the pensions as part of that, if they were not part of the equation or risks were properly disclosed then it might have changed people's minds. Regardless of if the pensions as offered were 'reasonable' or 'fair' (I do not know the pension terms nor attempt to define what amount would be fair) the fact is they were part of the terms of compensation for the jobs. Why do we let officials get away with making promises they will never be held responsible for?
I'm curious what the breakdown in current income levels is for these pensioners as well. While the are probably a few who are just fine, I'm guessing the majority of these people were counting on this money that was contractually promised to them for their employment. If the funds are going to be unevenly distributed anyway then at least means-test the receivers and assign payments according to need. Rich bond holders speculating on Detroit debt will survive a lot better than a retired firefighter with no others income. Case by case basis if pari distribution is already thrown to the wind.

headhunt's picture

These 'promises' where made by moron democrat politicians buying votes.

These 'promises' were made by moron union hacks threatening to stop all services to the public.

In democrat run cities it is circular blow job logic.

Swarmee's picture

Right, so what are we, as a society, going to do to rework the laws to prevent this going forward? Assigning blame in hindsight fixes nothing.
Second, either we have a representative democratic republic and accept that, or admit that the structure needs to change. The fuck good does it do to blame one party or another when the outcome isn't in your favor? I have no love for either established party in this country, they have demonstrated time and again they willingly take turns robbing the republic and use emotional issues as a wedge to garner votes while either agreeing on or ignoring mo pertinent issues of substance.
Rather than whine about red this or blue that the laws need to be rewritten to remove vote-buying and empty promises from being a tool of any party. Campaign promises should be enforceable and if they are abandoned then automatic removal from office as that politician was voted in based on those statements. Further, any unfunded liability should be forbidden, period. If something cannot be pre funded then the most mathematically conservative models should be used to account for investment growth with multiple mandatory audits and adjustments at regular intervals. None of this spend ten trillion today but cutting 100 million over ten years. No more choosing top theoretical rate of return to justify pension underfunding, etc. it's obvious these accounting gimmics have been and are used to make hyper optimistic promises which could only be reached in the best case, meanwhile the politicians brokering those deals know they will be long out of office when it defaults, or can't be held liable regardless. Is fucking easy to spend other people's money when you can't be held accountable.

headhunt's picture

The structure which needs changed is the elimination of unions in any government position.

It is corruption waiting to be corrupted (that is corruption squared).

These Ponzi scheme promises can go on for decades, as in Detroit, NY, California (pick a major city) when the politicians and the unions are complicit in the theft of taxes - i.e. citizens hard earned dollars.


I know, I know; 'what about the children!!'. They are fucked by decades of political and union theft.


Dingleberry's picture

Swarm needs to do a little more digging into how the city was ran, the unions funded, the pubic workers and their political machine.

Swarm will rather quickly come to the conclusion that anyone who is familiar with this situation does, and find his sympathy is perhaps misplaced.


Dewey Cheatum Howe's picture

Unions need to be voluntary associations not mandatory ones for starters. Workers like anyone else should be able to voluntarily if enough choose to do so group together to negotiate better deals. Problem is the unions are mandatory competition crushing corrupt backdoored piggy banks that workers have no choice but to join because they have monopolies on the labor pool for certain jobs and stiffle free market labor competition for better workers for starters. If one side can associate to crush wages the other side should be able to associate to counter it. Bigger problem is when both sides are a bunch of corrupt shitbag each parry corrupts the whole overall system with each action until it collapses.

Corrupted individuals are the root of all these problems on all sides the coin here. Once enough of them overrun insitutions like cockroaches they weaken the institutions to the point non-corrupted individuals pretty much don't have a chance in hell of righting the ship if they don't become corrupted by the whole mess in the first place before they are in position to do anything.

And this is why everything must fail and implode because we've passed that point of no return with all these institutions being corrupted beyond repair because there too many corrupted individuals to deal with first before any long term meaningfull solutions can be implemented.



rockface's picture

Many assigned blame in foresight but the same morons still voted to enrich themselves with other people money for 50 years.  Just like what's going on with Obama right now.

modest_proposal's picture

The key here is 'empty promises'. Going forward, we're going to see a lot more politicians get turfed out when they fail to fund pensions. Promising a pension hike will no longer be a reason to feel assured of civil servant support - in fact, such empty promises will become a liability if not promptly followed by concrete spends to cement the promise.

Offthebeach's picture

What about all the taxpaying citizens and businesses that said they had lived all their lives in Detroit, plowed back into local businesses and could n't survive if the cop/fireman/teach unions kept pushing up taxes for their salaries?
The last thirty years unions have been little more than asset strippers. Jackels on the prostrate public body.

Nick Jihad's picture

I especially like how the unions that conspired with politicians to double-cross the taxpayers, are so surprised when those same politicians double-cross them.

RafterManFMJ's picture

Oh God another cop apologist. Go fellate one, worship your master, on your knees.

cynicalskeptic's picture

Counterpoint - Detroit was paying out EXTRA amounts to pensioners for years  - a 13th monthly payment - when they felt they had 'extra' money. Almost $2 BILLION extra was paid out to pensioners over 20 odd years

I call BS.  That money, coming in when investments were performing well SHOULD have been kept in the system to earn more.  Those running things in Detroit clearly had NO IDEA of how things were supposed to be run.  'Extra' payments?  WTF?

Workers deserve their pensions - reasonable pensions  (not the maxed out make as much as you can in your final year to double your final year's earnings and double your resulting pension).  Too many corporate pension funds have been looted dumping those obligations onto taxpayers.  And - in marked contrast - too many government pensions are absurdly generous with politicians earning pensions for minimal years of service on various governmental boards and such.  'Average' workers get to pad theri pensions with final year boosts in earnings and other gimmicks.   

The problem is GREED - all around.  Detroit pensioners deserve a pension but they NEVER should have gotten EXTRA payments much less grown to view those extra payments as a 'right'

Those extra paymeents should be clawed back as much as the bonuses paid to bankers bailed out wioth TARP funds clawed back

CheapBastard's picture
Database: Which muni bond funds hold Detroit bonds?(as of June 2013)



CrazyCooter's picture

Thank you. I had that picture put on a good quality, long sleeve t-shirt and gave to my dad. He is tough to buy for at the holidays, so usually I don't because he doesn't want anything. He couldn't wait to wear it to the gym, so that is a win LOL!

To the point, neither of us could figure out who it was. My best guess was that it was a double image of Marx to go with the Marx Brother's theme, but I was pretty sure I was wrong!



ShorTed's picture

Friedrich Engles, Marx's butt buddy.

Steve in Greensboro's picture

The images are Marx, Engels, Lenin, Stalin, Mao and Bathhouse Barry.

Engels was the guy who sold weed to Marx.

SF beatnik's picture



It's Jesus, the first great socialist.


Praise Jesus.

akak's picture

And here I just assumed he was one of those guys from Duck Dynasty.

Nick Jihad's picture

I think the far left is Marx, followed by Engels.

cheetahbaby's picture

Engels. The intellectual godfather of this mess was Hegel. POS....

Joe Davola's picture

See - another reason not to invest your retirement funds in non-Treasury backed bonds.

ArkansasAngie's picture

Rule #1 Never ... ever ... invest in muni's.

If they are going to abridge the law ... well ... they can shove their next issue up Obama's arse.

NihilistZero's picture

Will the law be changed so Aunt Yellen can buy up all these Muni Bonds?

John Law Lives's picture

This is absolute bollocks.  This is a completely uneducated comment.  I have owned munis since the 1980s and never lost a single dollar in principal to default... ever.

headhunt's picture

So have I  - until GMC....