Detroit bondholders will be paid 74 cents on the dollar; working women can relate
If you heard my commentary yesterday on the latest in the Detroit bankruptcy battles, I began with the news that the city had reached a deal with the holders of its general obligation bonds.
All we knew then was that an agreement had been reached, and I said the bondholders were, to quote myself, “evidently going to settle for less than 20 cents on every dollar owed them.”
Well, I was astonishingly far off.
In fact, they ended up settling for 74 cents for every dollar. But there is a reason why I was so wrong.
Earlier this year, when the first version of the proposed bankruptcy settlement plan was revealed, emergency manager Kevyn Orr offered these bondholders 20 cents for every dollar owed them. Later, he lowered that to 15 cents.
Finally, the three largest bondholders agreed to take this to mediation. I expected the mediators would split the difference.
Instead, they gave the bondholders far more than Orr’s largest offers. Afterward, the mediators said they hoped this settlement would encourage other parties to agree to settle their claims through mediation.
Afterward, several things struck me about this. This may sound Machiavellian, but I wonder if Kevyn Orr knew all along the bondholders would get a far better deal from mediation.
What he wants to do, first and foremost, is get the bankruptcy done before he leaves in October. Mediation is an efficient way to get things resolved. If the various creditors and other parties see that they may get a better deal from mediation than by negotiating with the emergency manager, guess what?
That’s exactly what they’ll do. Something else struck me about that 74%. That’s exactly the same percentage most Detroit pensioners would get if they agree to the proposal settlement.
Police and fire officials, whose fund is in better shape, would take a smaller hit. But most retirees would get 74% of what they are getting now.
There are a couple other odd coincidences about that number.
This Tuesday was something called Equal Pay Day, which symbolizes pay inequality between men and women.
As U.S. Sen. Debbie Stabenow, D-Michigan, noted then, “Because of gender discrimination, in pay, women nationally, on average, still earn only 77 cents on the dollar compared to men.”
That varies by state, however, and in Michigan, women earn on average only – you guessed it – 74% as much as men.
If you have a twisted sense of irony, you could argue that Detroit pensioners and creditors are about to experience what working women experience all the time.
There’s another irony, too. Last week President Obama came to Ann Arbor to argue for raising the minimum wage to $10.10 per hour. Currently, the minimum is just about 74% of that.
Twenty-odd years ago, I went to a conference on Detroit’s problems, which were severe even then. Toward the end, one man stood up and told a high-powered panel: “You can talk all day long, but Detroit needs exactly two things – jobs and money.”
And he walked out.
Things are vastly more complex than that. But the bottom line is that anonymous man wasn’t the least bit wrong.