Detroit's bankruptcy trial to cut $12B debt load begins
Opening statements in Detroit's historic bankruptcy trial began Tuesday afternoon in federal court, where lawyers for the city will attempt to convince a judge that its plans to wipe out billions of dollars in debt should be approved.
Attorney Bruce Bennett, who is representing the city, went first during opening statements in U.S. District Court, saying though progress has been made, "the city is still in distress." He also said the plan gives creditors all of value that the city can provide.
"All the revenue sources creditors can reach and are permitted to reach are exhausted," Bennett told Judge Steven Rhodes.
The trial in U.S. District Court comes a little more than 13 months after Detroit became the largest U.S. city to file for bankruptcy. Detroit expects to cut $12 billion in unsecured debt to about $5 billion, according to Bill Nowling, a spokesman for state-appointed emergency manager Kevyn Orr, who has been in charge of the city's finances since March 2013.
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Most creditors, including more than 30,000 retirees and city employees, have endorsed the plan of adjustment put together by Orr, who guided Chrysler through its bankruptcy, and his restructuring team.
The plan includes commitments from the state, major corporations, foundations and others to donate more than $800 million over 20 years to soften cuts to city pensions. In return, pieces in the city-owned Detroit Institute of Arts would be placed into a trust to keep them from being sold to satisfy creditors.
General retirees would take a 4.5 percent pension cut and lose annual inflation adjustments. Retired police officers and firefighters would lose only a portion of their annual cost-of-living raise.
The strongest opposition to the plan has come from bond insurers like New York-based Syncora Guarantee. Syncora has said its claim is about $400 million and that Detroit has unfairly discriminated against financial creditors.
"It has been a very fast-track bankruptcy, which Syncora has no issue with," company attorney James Sprayregen said. "Syncora's issue is the lack of transparency of the process and the unfair treatment of its claims."
Bankruptcy Judge Steven Rhodes has scheduled additional hearing dates, if needed, into October.
But in the end, bankruptcy expert Anthony Sabino expects Rhodes to approve Detroit's bankruptcy plan - followed by appeals from creditors.