Judge to set start date soon for Detroit bankruptcy exit measures

Reuters News
Posted: Nov 10, 2014 5:15 PM

By Lisa Lambert

(Reuters) - The judge who confirmed Detroit's plan to exit the biggest municipal bankruptcy in history could set a date later this week for the cost- and debt-cutting measures to take effect.

Federal Bankruptcy Judge Steven Rhodes on Friday ruled the plan for cutting $7 billion in debt was fair to creditors and feasible for the city to implement. [ID:nL1N0SX1A4] Now he must set that plan in motion with a confirmation order.

At a hearing on Monday where he also reviewed plans for assessing the reasonableness of fees that outside consultants charged Detroit, Rhodes said he would hold a hearing on the order on Wednesday.

The city is eager for the plan to take effect soon so it can obtain an exit loan and set up retiree healthcare associations created as part of a settlement with pensioners by the end of the year.

"Creditors made agreements and we all thought the goal was to get the effective date by Thanksgiving, realistically," said attorney Alfredo Perez, who represented one of the largest Detroit creditors, Financial Guaranty Insurance Co, in the proceedings. "There are economic consequences that follow if we push it to the end of the year."

Rhodes also had said he would review more than $140 million in fees charged, primarily by attorneys, through the 16 months after Detroit filed for bankruptcy. On Monday he proposed a process for going over the fees and sorting through objections to the charges that will include mediation and having the public pensions submit the fees they paid for review.

A lawyer for the city told Rhodes the city needs at least until January to resolve questions about the fees' reasonableness, while one of the lawyers who represented the city in the bankruptcy case, Heather Lennox of the firm Jones Day, pressed for a speedier resolution.

Charles Raimi, deputy corporation counsel for Detroit, said Mayor Mike Duggan learned in September that the total fees paid would exceed estimates of $130 million and grew concerned that payments made over the budgeted amounts would come from funds intended for city services.

"We have very, very serious and sound reasons for questioning the fees," said Raimi.

When Rhodes asked why the city was only now bringing its concerns to court, Raimi said the emergency manager "tightly controlled" the process of hiring and paying lawyers and consultants and did not include Duggan or city attorneys.

(Reporting by Lisa Lambert in Washington; editing by Matthew Lewis)