A committee created by a U.S. bankruptcy court to represent Detroit's retired workers said on Friday it reached an agreement in principle with the city over pensions and healthcare.
The agreement, subject to documentation, would permit the committee to support Detroit's plan to adjust $18 billion of debt and exit the biggest municipal bankruptcy in U.S. history, according to a statement issued by Dentons, the committee's law firm.
"The deal, which includes significant protections and potential enhancements for retirees under the city's plan, a cap on maximum pension losses to individual retirees and significantly greater funding for retiree healthcare benefits, reflects the significant efforts of the nine-member committee and its professionals," the statement said.
Sam Alberts, a Dentons attorney, said pension cuts agreed to by Detroit's two retirement systems could be significantly restored under certain circumstances.
Last week, the board of Detroit's Police and Fire Retirement System accepted a deal that would result in no pension cuts for public safety workers but would reduce cost of living adjustments (COLAs) to one per cent.
The General Retirement System board also accepted a deal for general city workers that calls for a 4.5 per cent cut in pensions as well as the elimination of COLAs. Those deals would be on a ballot sent to Detroit's workers and retirees, who will be asked to vote on the city's debt adjustment plan.
As for retiree healthcare, Alberts said that if Detroit succeeds in invalidating $1.45 billion of pension debt sold in 2005 and 2006, the money the city would have allocated to pay off that debt would instead be tapped for retiree medical coverage.
The agreement with the retiree committee added to the fast-paced progress the city's emergency manager Kevyn Orr has made with major creditors in April. It also came as the city was to file its fourth version of a key supporting document for its debt adjustment plan by a Friday deadline set by the court.
Earlier this month, Judge Steven Rhodes, who is overseeing Detroit's bankruptcy case, approved a crucial settlement between the city and two investment banks over costly interest-rate swaps. Also, the city reached a deal with three bond insurance companies over the treatment of voter-approved general obligation bonds.
Before the deal was announced on Friday, Orr said in a speech to the American Bankruptcy Institute in Washington D.C. that there is still a lot of work ahead.
"Because despite some of the successes we've had with mediations and some of the settlements we've announced we've got to negotiate definitive documents," he said. "We've got to get through a plan structure where some of our counterparties haven't agreed to anything. ... That's going to be difficult."
Detroit must also secure the $816 million pledged by philanthropic foundations, the Detroit Institute of Arts and by Michigan Governor Rick Snyder to aid the city's retirees and avoid a fire sale of art, Orr said in his speech.