Detroit had to file bankruptcy, use land, to fix woes: attorney

Reuters News
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Posted: Oct 27, 2014 2:38 PM

By Lisa Lambert

DETROIT (Reuters) - Detroit could only deal with its fiscal woes, including a big public pension burden, by filing for bankruptcy and tapping into the city's one abundant asset, land, to reach settlements with key creditors, an attorney said on Monday.

Bruce Bennett, Detroit's lead attorney at law firm Jones Day, began closing arguments in the biggest-ever municipal bankruptcy case, working to win federal court approval for the city's 1,165-page debt adjustment plan.

"This plan is very broadly consensual at this point and the city has settled with all the objectors and all the major economic players in the city of Detroit," Bennett told U.S. Bankruptcy Court Judge Steven Rhodes, who must determine if the plan is fair to creditors and feasible for the city to implement.

Rhodes, who began a confirmation hearing on the plan Sept. 2, has said he will deliver his ruling late next week.

Bennett's remarks came after an attorney for creditors that own Detroit pension debt announced a final deal to end their objections. That deal, which includes bond insurer Financial Guaranty Insurance Co (FGIC), includes a provision allowing for creditor participation in developing city land. In the case of FGIC and the debt holders, they would have an option to turn the site of the Joe Louis Arena into a mixed-use development, including a convention hotel. Bond insurer Syncora Guarantee Inc, Detroit's fiercest objector, also settled last month in a deal that includes the development of vacant land.

Bennett said that no other municipality in bankruptcy has been able to shed $7 billion of its $18 billion of debt, partly by having its creditors participate in its reinvestment effort.

Another milestone in the case was the so-called grand bargain, which taps a pool of money from foundations, the Detroit Institute of Arts and the state of Michigan to ease pension cuts and protect art work from being sold to pay creditors.

The grand bargain was instrumental in winning support for the plan from the city's retirees. But Rhodes questioned whether retirees would get a 100 percent recovery under the plan because it aims to eliminate an unfunded pension liability versus smaller recoveries for other city creditors.

In his closing statement, Bennett said the city could not be forced to sell assets like art to enhance creditor recoveries -- a point disputed by Syncora and FGIC before they settled. He also said that Detroit was literally taxed out.

"Detroit’s taxes are higher than many cities in the state of the Michigan and our services are not anywhere close to the best in Michigan," he said.

Earlier on Monday, an attorney for investment firms that own 90 percent of the $1.1 billion of certificates of participation insured by FGIC and who were the last significant objectors in the case, announced a settlement.

(Reporting by Lisa Lambert; Additional reporting by Karen Pierog in Chicago; Editing by Bernadette Baum and Andrew Hay)