Mediators in Detroit’s bankruptcy case have made a potentially huge breakthrough with some of the city’s bondholders.
Bondholders are one of the city’s biggest groups of unsecured creditors.
That means they’re also one of the most important groups for emergency manager Kevyn Orr to get on board with his plan of adjustment, and avoid a protracted legal battle that could bog the city down in bankruptcy court for months or years.
Now, negotiators for the city and three major bond insurers have announced a settlement deal.
Holders of insured Unlimited Tax General Obligation bonds (UTGOs) will get $287.5 million.
That means they’ll recoup almost 75 cents on the dollar – an enormous jump from the 15 cents on the dollar Orr had most recently proposed in his revised plan of adjustment.
The city now says a “substantial portion” of the savings (about $100 million) will go toward an “income stabilization fund” to make sure “vulnerable retirees” stay out of poverty.
Detroit retirees still face big pension cuts – possibly up to 34% for some non-uniform retirees. Their representatives haven’t been able to reach a settlement with city negotiators.
Details of the settlement are “still in the final documentation process,” mediators say in a statement.
“As the mediation process accelerates … the mediators hope that this settlement will encourage all of the remaining parties to the bankruptcy to redouble their mediation efforts to reach meaningful agreements,” the statement continues.
Judge Steven Rhodes will have to approve this settlement, as well as the entire plan of adjustment. A trial to determine whether the plan is “fair and equitable” is set for mid-July.
Orr has said the city is aiming to exit bankruptcy by mid-October.