Detroit wins approval of disclosure statement for fourth amended plan

By Caroline Salls

Pittsburgh, May 5 - The City of Detroit obtained court approval of the disclosure statement for its fourth amended plan of adjustment, according to a Monday filing with the U.S. Bankruptcy Court for the Eastern District of Michigan.

As previously reported, the plan confirmation hearing is scheduled to begin on July 24.

Detroit said the plan includes settlements that it believes will benefit city creditors and residents.

Specifically, the city said it settled controversial and sensitive issues relating to the Detroit Institute of Arts (DIA), with that settlement expected to yield at least $466 million to provide a source of recovery for the roughly 33,000 individuals who participate in the city's retirement and to free up other funds for distribution to other.

The plan also includes a settlement with the State of Michigan for the benefit of holders of pension claims.

Except in the case of subordinated claims, Detroit said the plan provides a recovery to all classes of claims.

According to the fourth amended disclosure statement, the plan allows for $1.4 billion in investment in the city over 10 years.

The city said it believes this investment is critical to provide essential services to city residents, attract new residents and businesses, reduce crime, demolish blighted and dangerous properties, provide functional streetlights that are aligned with the current population footprint, improve information technology systems and "otherwise set the city on a path toward a better future."

Creditor treatment

Treatment of creditors under the fourth amended plan, which was filed on Monday, will include the following:

• Unimpaired water and sewer bond claims will be reinstated. Holders of impaired water and sewer bond claims will receive either new bonds equal to the principal amount of the existing bonds or cash equal to the principal and interest owed, at the city's option.

Holders of sewer and water bonds can choose to receive new existing-rate bonds instead or new water/sewer bonds.

Under the amended plan, this election can be made regardless of whether the bondholders vote to accept the plan, which was a condition to the bond election under the previous version of the plan;

• Holders of revolving sewer bond claims and revolver water bond claims will have their claims reinstated;

• Secured general obligation claims, other secured claims, parking bond claims and HUD installment note claims will be reinstated;

• Holders of limited tax G.O. bond claims, other unsecured claims and Downtown Development Authority claims will receive new unsecured shares of new B notes;

• Holders of unlimited tax G.O. bond claims will receive a share of restructured UTGO bonds;

• If currently disputed COP claims are ultimately allowed, holders could elect to participate in a settlement in connection with some or all of the portions of COP claims that would be deemed assigned to it. A disputed COP claims reserve will be established on the plan effective date;

• Holders of convenience claims will recover 25% in cash; and

• Holders of subordinated claims will receive no distribution.

Pension deals

Last week, Detroit reached an agreement with the Detroit Retired City Employees Association (DRCEA) under which the city retirees will experience a 4.5% cut in current pension benefits, as well as a loss of cost-of-living-allowances, which can be restored depending on the performance of the General Retirement System under the plan of adjustment.

Retirees will also have a "meaningful voice" in governance of the General Retirement System and of a Voluntary Employees Beneficiary Association (VEBA) that is to be established.

On April 15, the city announced an agreement with The Retired Detroit Police and Fire Fighters Association. The association said it would recommend that its members approve the plan with the agreed-upon provisions, which preserve pensions and some cost-of-living allowances for retirees.

Detroit filed for bankruptcy on July 18, 2013 in the U.S. Bankruptcy Court for the Eastern District of Michigan under Chapter 9 case number 13-53846.

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