Nearly one year after Detroit collapsed, the troubled municipality has finally reportedly reached a settlement with the city’s bankrupt unsecured bond holders, according to the Detroit Free Press, which cited unnamed sources in its article.
This latest move could help the Motor City restructure its terrible economic and financial conditions because it would prompt other unsecured creditors, including pensioners, to accept any cuts. Detroit’s proposed initiative would be to give investors of $374.6 million in unlimited general tax obligation bonds 15 cents on the dollar and since most bond holders have insurance the insurers would pay for the rest, according to its Chapter 9 bankruptcy.
CNBC did confirm the news and a court-appointed mediator is expected to announce the results of the settlement agreement sometime late Wednesday. William Nowling, spokesman for Detroit emergency manager Kevyn Orr, has yet to list the specificities of the settlement.
“The real issue is we need some settlement agreement to come to pass first, and I hope that takes place this month,” Michigan Republican Governor Rick Snyder at an engineering conference Tuesday. “I really view that next month, hopefully, is available to get it through the legislative process.”
Bond insurers National Public Finance Guarantee Corp., a unit of MBIA ; Assured Guaranty Municipal Corp., a unit of Assured Guaranty; and Ambac Assurance Corp., a unit of Ambac Financial Group Inc., filed a lawsuit against Detroit late last year and accused the city of transferring property taxes to the general pool of funds, an illegal move. Spokespersons for the three firms did not comment on the matter.
It has been noted that once Detroit has completed the agreements then lawmakers will draft bills in order to remedy the decades of spectacular financial mismanagement and corruption. Once the settlement takes place then the city can approve the $350 million in financial assistance.
Some of the measures consist of slashing 26 percent to monthly pension checks allocated to retirees belonging to the General Retirement System, a six percent reduction in police and fire retiree monthly pensions and encourage pension funds to establish a new fund to hold the assets of both pension funds and a new board of trustees for each fund.
The pension funds released a joint statement that labeled Orr’s proposal for replacement of the pension boards as “tantamount to a takeover.”
“This is when we are supposed to be in good-faith negotiations and court-ordered mediation,” the statement said. “The plan as proposed is best described as completely unrealistic for the operation of these important pension funds for first responders and city workers who dedicated their careers to the City of Detroit. Indeed, such radical and irresponsible concepts could very well derail mediation and ensure protracted litigation.”
Detroit currently has a debt load of at least $18 billion and the collapse of the city can be attributed to excessive government spending, unfunded pension liabilities, high taxes, liberal policies and high crime rates.
With today’s difficult economy, unfunded guarantees and governments not understanding the details of retirement funds, other cities face similar financial burdens.
