Detroit — Gov. Rick Snyder said Friday that Detroit going through bankruptcy will stabilize the city’s finances and bring some certainty to creditors seeking to get repaid for more than $18 billion in debt.
“This may be the low day, but this is the day to stabilize Detroit,” Snyder said at a press conference at Detroit Public Television’s Midtown studios.
With the nation watching Detroit’s decades-long decline culminate with the largest municipal bankruptcy filing in U.S. history, Snyder and Emergency Manager Kevyn Orr said bankruptcy court gives the city a forum to better negotiate with creditors.
“Going through this process will allow us to give them some certainty to say this is a debt that can be paid and will be paid,” Snyder said.
The Republican governor also sought to emphasize positive economic redevelopment in the city, with companies and workers moving downtown and to Midtown, even as City Hall has faltered.
“The last major obstacle, in my view, for really creating growth in Detroit is the city government,” Snyder said.
Orr sought to placate fears of a mass sell-off of Detroit’s assets to pay off creditors who range from Wall Street banks to retired city employees.
“Right now there’s nothing for sale, including Howdy Doody,” Orr said, referring to one of the pieces in storage at the Detroit Institute of Arts.
Orr emphasized that he negotiated in good faith with creditors before asking Snyder to approve a bankruptcy filing.
“We didn’t make this decision improvidently or in haste,” Orr told reporters.
A bankruptcy judge ultimately will decide if Orr and creditors negotiated in good faith, which is a key requirement of a Chapter 9 filing.
Orr said he continued to negotiate despite being sued by retirees and the city’s pension funds.
“Anyone who thinks I wasn’t negotiating in good faith when they’re suing me, I ask you…who’s not operating in good faith?” Orr said.
Orr defended a deal reached one week ago with secured creditors Bank of America Corp. and UBS AG, which have agreed to accept 75 cents on the dollar for approximately $340 million in swaps liabilities, according to a source familiar with the deal.
The deal provides the city with about $11 million a month in casino tax revenue that could be spent on essential city services regardless of whether the city files bankruptcy.
The 75 cents is better than the dime on the dollar deal offered to unsecured creditors, including the city’s pension funds.
That’s because the swaps parties had liens on the city’s casino revenue. The parties agreed to release the liens as part of the deal.
“This gives us access to $180 million of annual revenue,” Orr said.
The bankruptcy filing also frees up cash that the city will use on essential services, Orr said.
“Bankruptcy gives us breathing room,” Orr said. “We were being sued on almost a weekly basis. I pleaded for that not to happen.”
Orr said he wasn’t scared by the depth of the city’s debt when he arrived in March.
The city’s budget tricks, however, scared him. Yet he’s noticed more outrage over his appointment than over the city’s financial problems and decisions made by city leaders.
“I wish there had been a lot more outrage over the last 10 to 20 years,” Orr said.
A series of lawsuits filed in recent days by retirees and the city’s pension funds did not trigger the bankruptcy filing Thursday.
“We were running out of time,” Orr said.
On Thursday, Snyder authorized Orr to file bankruptcy under Public Act 436, the emergency manager law the Republican-controlled Legislature passed in December to replace the emergency manager law voters repealed at the ballot box last November.
The move by Snyder and Orr culminated a decades-long slide that transformed the nation’s iconic industrial town into a model of urban decline crippled by population loss, a dwindling tax base and financial problems.
Snyder said he hopes bankruptcy will free up more money to improve vital services in a city with a 58-minute police response time.
“This hasn’t happened much across the country,” City Council President Saunteel Jenkins said after the media briefing. “People want to know what this means for the services they already aren’t getting.”
“The good news in this, this will allow us to restructure our debt,” she said of the bankruptcy.
Thursday’s filing, which has broad implications for the nation’s municipal bond market and sanctity of public pension funds, was immediately met with outrage, disappointment and a vow to fight.
Some creditors adopted a war stance during Orr’s month-long push to secure concessions from creditors, including deep cuts to pensions.
Orr said Friday his team is working on additional agreements with creditors.
Orr has said he hopes the city emerges from bankruptcy by late summer or early fall of next year, adding that bankruptcy will be used as a tool to “put this city on a footing that is sustainable so it can continue to thrive” and dismissed critics who say he hasn’t bargained in good faith.”
“Of course, the best laid plans can go awry when the first shot is fired,” Orr said Friday.
Courtesy of The Detroit News