Update, and it's official:
- JUDGE: DETROIT ELIGIBLE FOR IMMEDIATE BANKRUPTCY PROTECTION
- DETROIT TO REMAIN UNDER BANKRUPTCY COURT PROTECTION, JUDGE SAYS
As somewhat expected - though hoped against by many Detroit union workers - Judge Steven Rhodes appears to have confirmed Detroit is eligible for bankruptcy protection (after pointing out that the city's accounting was accurate and it is indeed insolvent) making this the largest ever muni bankruptcy.
- JUDGE RHODES SAYS HE WILL ALLOW PENSION CUTS IN DETROIT'S BANKRUPTCY
- DETROIT JUDGE: NOTHING SEPARATES PENSIONS FROM OTHER DEBT
The city will now begin working toward its next major move - the submission of a plan to re-adjust its more than $18 billion in debt - including significant haircuts for pension funds (possibly 16c on the dollar recovery) [6] and bondholders. With Detroit as precedent, we can only imagine the torrent of other cities in trouble that will be willing to fold.
He did provide an "out" though:
- RHODES WARNS THE CITY THAT JUST BECAUSE PENSION RIGHTS CAN BE IMPAIRED, DOESN'T MEAN HE WILL APPROVE A PLAN WITH STEEP CUTS
Via Bloomberg,
Before the bankruptcy, Orr proposed canceling $3.5 billion in future pension obligations and at least $1.4 billion in unsecured bonds. The debts would be replaced with a $2 billion note paying 1.5 percent interest.
But, of course:
Detroit must ask “what is necessary to invest to attract business?” Spiotto said in a phone interview. “If you don’t solve the systemic problem, you are just going to repeat it.”
Summary from Reuters:
Detroit is eligible for the biggest municipal bankruptcy in U.S. history because the city is broke and without Chapter 9 bankruptcy would continue on the path that has led it to insolvency, a federal judge ruled on Tuesday.
The judge also ruled that while the city did not negotiate in "good faith" with creditors, there were too many of them to make such negotiations practical.
Appeals are expected, but the ruling by U.S. Judge Steven Rhodes sets the stage for Detroit to file a plan of financial readjustment by March 1. The city's attorneys said they were not sure if the filing would occur before the end of the year.
The ruling came 25 days after the end of an eligibility trial during which Detroit's labor unions, retirees and pension funds argued against the city's July 18 bankruptcy filing.