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.
- DETROIT BEGINS MORATORIUM ON ALL DEBT SERVICE PAYMENTS FOR UNSECURED FUNDED DEBT
- DETROIT TO DEFAULT ON CERTIFICATES OF PARTICIPATION DUE TODAY
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.
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 http://www.detroitmi.gov/. 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.