Financial News

Mediators Reach Agreement on Detroit Bankruptcy, but Pensioners Unhappy

Mediators Reach Agreement on Detroit Bankruptcy, but Pensioners Unhappy

by Mary Thorson

In a Christmas Eve negotiation, the judicial mediators appointed to resolve Detroit’s massive financial bankruptcy restructuring reached a settlement proposal they consider “fair and equitable.” The settlement requires Detroit to pay UBS AG and Bank of America $165 million for city pension debt, and, it makes $180 million in revenues from casinos available to the city. The agreement must be finalized by January 31, 2014.

The mediators are strongly encouraging city officials to accept the settlement, and, they emphasize that an earlier deal proposed by the banks required Detroit to pay an additional $65 million. Chief Judge Gerald Rosen, who leads the mediation, facilitated the additional negotiation with the banks which reduced the city’s payment by $65 million to prevent devastating cuts to some creditors, including pensioners.  Attorneys representing the two pension funds administered by Detroit have found the settlement unsatisfactory, and they are expected to contest it.

In July, Detroit filed a petition for protection under Chapter 9 bankruptcy. Detroit’s case is the largest municipal bankruptcy recorded to date with $18 billion in estimated liabilities. The sources of financial problems are widespread and significant including, but not limited to:

  • Several decades of economic decline and union dominance;
  • Unstainable commitments for public employees’ retirement obligations;
  • Population shifting out of the city into the suburbs; and,
  • A failing city infrastructure for maintenance, repairs, and emergency and support services.

When the bankruptcy petition was filed, Bankruptcy Judge Steven Rhodes indicated that the mediator would be Chief Judge Gerald Rosen of the U.S. District Court for the Eastern District of Michigan. Subsequently, Rosen appointed additional mediators to assist him: U.S. District Judge Victoria Roberts, a Detroit native who is also an adjunct professor at the University of Michigan Law School; U.S. Bankruptcy Judge Elizabeth Perris of the District of Oregon; Senior U.S. District Judge Wiley Daniel of the District of Colorado; former U.S. Bankruptcy and U.S. District Judge David Coar; and Eugene Driker, also a Detroit native, who is a well-known mediator in Michigan.

 

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