Orr to meet with creditors next week, but will the negotiations help the city avoid bankruptcy?
Next week Kevyn Orr will be meeting with creditors to start negotiations in attempts to keep the city from going bankrupt.
According to Matt Helms of the Detroit Free Press, the negotiations will includes over 150 representatives from the city’s major creditors including national banks who hold the city’s bonds, insurers, union representatives, and pensioners.
They probably will not be satisfied with the offers Orr will present in a roughly 200-page document outlining the city’s assets and liabilities. The report will make the case for what Detroit reasonably can pay its creditors. People close to the proceedings told the Free Press the offer will be for less than 10 cents for every dollar the city owes. Orr’s office refused to confirm that figure.
If Orr can’t win a deal with creditors, the fate of benefits for 30,000 current and retired municipal workers and the city’s ability to fund its basic services would likely move into a federal court in proceedings some bankruptcy lawyers fear could stretch out for years.
Orr said he remains optimistic a consensual deal can be brokered outside court, and if not, that a Chapter 9 bankruptcy could be done in relatively quick fashion. But Orr’s offer “will be a tough pill to swallow” for creditors, said spokesman Bill Nowling.
Last month Orr released a 45-day report that showed the city has been running deficits of $100 million or more since 2008 and has obligations of at least $15 billion.
Helms reports that the city is coming up on $39.7-million debt payment. The payment, according to Moody’s Investors Service, is due June 15:
But the payment is due even as Nowling said the city’s year-end cash flow — a key measure of its ability to pay bills as they come due — is expected to drop to near zero by the end of the city’s fiscal year June 30, hover around that level for the rest of 2013 and fall into negative in January.
Bill Nowling, Orr’s spokesman, told the Free Press that Orr is focusing on how to provide basic services to Detroit residents. At the same time, union pensioners and city employees do not feel assured.
Darren Nichols of the Detroit News gathered a Union perspective:
"Pretty much all of our members are concerned (about the outcome of the meeting)," said Don Taylor, president of the retired Detroit police and firefighters' union. "We're old, retired and our livelihood is at stake. Pension and health care is our concern."
Taylor added many high-ranking firefighters and police officers "don't get (Social Security). (Our pension) is all we got."
The report hints that city employees who were not hit by last year's wage reductions could face pay cuts in the near future and that Wall Street bondholders will be asked to take a haircut to relieve a city that shelled out $133 million in debt payments last year on a $1.23 billion budget.
Orr’s meeting with the creditors will hopefully result in a better understanding of Detroit’s future and some answers on whether or not the city is headed to bankruptcy court.
-Julia Field, Michigan Radio Newsroom