Detroit bankruptcy bond deal frees up $56M for pensioners, Orr says
By Nathan Bomey, Detroit Free Press | |
McClatchy-Tribune Information Services |
The deal sets aside
As a condition of the deal, major bond insurers on the hook for
The deal counts as major victory for Orr and is another example of how an active mediation process shepherded by U.S. District Judge
Rosen said the deal was reached with bond insurers "after intensive negotiating sessions over several months." The deal with general obligation bondholders was first reported Tuesday night on freep.com.
The insurers' decision to give up the fight -- as long as U.S. Bankruptcy Judge
Until now, the bond insurers -- Assured,
That's because those types of bonds are often sold to pay for roads, bridges, schools and other public works and are assumed to be untouchable because they are backed by a government's taxing authority. Still, Orr has acknowledged that the bondholders would have stronger legal claim than other unsecured creditors, such as a company owed a bill for services rendered.
As part of their settlement, the bond insurers agreed to exchange the bonds for new debt issued by the
In court filings, the city lists about
Help for pensioners
In the deal, the city agreed to allow the special group of unlimited-tax bondholders to keep 74% of their
The insurers that back the debt have agreed to allow the city to divert 26% of the taxes they're owed back to a new fund designed to alleviate the impact of the bankruptcy on
That comes to
The resolution reflects a dramatically better deal for the bondholders and insurers, than Orr offered last week. The city had offered
The deal also underscores that publicized offers to creditors aren't concrete.
"People have to be very careful with these plans because they're highly dynamic, they're going to change over time," Orr said.
Cram down option
The insurers agreed to vote for Orr's bankruptcy restructuring plan, potentially giving the city the option of pursuing a forcible restructuring called a cram down if the 170,000 creditors vote to reject Orr's plan. A cram down is allowed, according to federal bankruptcy law, if enough key creditors agree to a plan, even if some do not support it.
With the threat of a cram down looming, the bond settlement puts pressure on pensioners to consider embracing Orr's bankruptcy plan, which would require retirees to accept pension cuts to allow
Orr has proposed accepting
--
But general retirement and police and fire pensioners must agree to accept Orr's deal, or the
"This train is leaving the station," Orr said. "Now they need to get on board."
Big trial this summer
"The mediators hope that this settlement will encourage all of the remaining parties to the bankruptcy to re-double their mediation efforts to reach meaningful agreements," Rosen said.
A separate settlement with another group of limited-use general obligation bondholders is also expected. They will get less because their debt was always considered higher risk than the unlimited-tax general obligation bonds and so their legal position weaker in a Chapter 9 bankruptcy case.
By reaching a deal to pay bondholders less than they are owed,
Rhodes had urged unsecured bondholders and the city to reach a settlement, saying he would prefer a deal instead of a legal ruling.
"Given
Contact
___
(c)2014 the Detroit Free Press
Visit the Detroit Free Press at www.freep.com
Distributed by MCT Information Services
Wordcount: | 1042 |
Advisor News
Annuity News
Health/Employee Benefits News
Life Insurance News