Honigman and Miller Canfield were intimately involved in process
By Corey Williams
Associated Press
DETROIT (AP) — The formalities may be over for Detroit, which officially exited bankruptcy after midnight Wednesday and shrugged off the yoke of state receivership. But efforts to make the Motor City livable for residents and appealing to businesses will likely have to last for years to come.
“The reality is tomorrow’s not any different than today,” Mayor Mike Duggan said Wednesday during the announcement that Detroit was coming out of the largest municipal bankruptcy in U.S. history. “We still have enormous challenges delivering the services in the city every day, but at least now we are no longer a city that’s in bankruptcy.”
Reducing Detroit’s crime rate, removing blight, demolishing tens of thousands of abandoned houses and finding ways to increase revenue — partly by building up the tax base — are among the issues the city faces as it moves forward. Detroit also must work with a financial review commission on its budgets and spending.
“We’re going to start afresh ... and we’re going to do the best we can to deliver the kinds of services the people in this city deserve,” said Duggan.
On the eve of the city’s emergence from bankruptcy, it completed the sale Wednesday of $1.28 billion in bonds. The money, to be repaid from tax receipts, pays off various creditors, refinances municipal debt and funds improved public services, said Miller Canfield, a law firm handling the deals.
The financings include:
• $275,000,000 Financial Recovery Income Tax Revenue and Refunding Bonds, Series 2014A/B (the “Exit Financing Bonds”), to refinance city debt, pay for quality of life projects, and pay for certain other settlement obligations;
• $631,964,145 Financial Recovery Bonds, Series 2014B(1) and B(2) , to fund settlements with FGIC, Syncora, general unsecured creditors, holders and insurers of the city’s limited tax general obligation bonds and fund the city’s General Retirement System VEBA and the Police and Fire Retirement System VEBA;
• $88,430,021 Financial Recovery Bonds, Series 2014C, to satisfy a portion of claims settled respecting the city’s pension obligation certificates; and
• $287,560,790 Unlimited Tax General Obligation Restructured Local Project Bonds, Fourth Lien, delivered to the Michigan Finance Authority to pay for settlements with holders and insurers of the city’s unlimited tax general obligation debt.
All four transactions include structures never before adapted to the municipal market. The city created these first-of-their-kind bond issues to execute its chapter 9 plan of adjustment approved by U.S. Bankruptcy Judge Steven Rhodes on November 7, 2014. Miller Canfield, which served as co-bankruptcy counsel for the city during the chapter 9 case, served as bond counsel for each of the four historic financings.
“It’s our privilege to have served as bond counsel to our client the City of Detroit as the city gets a new start toward a bright future,” said Amanda Van Dusen, chair of Miller Canfield’s public finance group and leader of the firm’s Detroit team. Van Dusen, who brings over thirty years’ experience to bear in complex municipal finance transactions, coordinated the efforts of a half-dozen legal professionals working to bring the bond issues to a successful close.
Referring to the firm’s role in the bankruptcy, Miller Canfield CEO Michael McGee said, “we’re grateful that our experience in municipal finance, bankruptcy, labor law, pensions, benefits and local government — plus lifelong relationships and community knowledge — could be put to the service of Detroit residents and businesses. We’ve been committed to this city for more than 160 years. We proudly call it our home.”
In addition to the debt structuring accomplished today, the bankruptcy exit plan includes shedding $7 billion of the City’s $18 billion debt, retaining between 95% and 100% of former city workers’ pensions and reinvesting $1.7 billion in the city over 10 years.
The Miller Canfield finance team was led by Public Law principals Amanda Van Dusen and Harold Bulger. Miller Canfield’s bankruptcy team included Bankruptcy and Restructuring principals Jon Green and Stephen LaPlante; Labor and Employment principals Richard Warren and John Willems, and Employee Benefits principal Ken Sachs.
State-appointed emergency manager Kevyn Orr, who filed Detroit’s bankruptcy petition in July 2013 and put together its restructuring plan, also officially stepped down Wednesday as financial overseer.
Orr had extraordinary authority over Detroit government for 18 months before giving most of it back to Duggan in September. Michigan Gov. Rick Snyder hired Orr in March 2013 to take over Detroit’s finances. Orr filed the city’s bankruptcy petition as an effort to overcome decades of population loss, a chronic loss of tax revenue and piles of debt that couldn’t be managed.
Last month, federal Judge Steven Rhodes approved Detroit’s plan to restructure its $12 billion debt load. It essentially removes and restructures $7 billion of that debt, while calling for $1.7 billion in savings and revenue over a decade to improve city services.
“What the plan of adjustment says over 10 years is if the city hits all of its budget targets and we successfully raise revenue in multiple areas and we successfully cut costs in multiple areas ... there would be $1.7 billion in new services,” Duggan said. “Basically, it’s money that we’re going to have to earn as we produce.”
About $440 million of that will be used to eradicate blight and help demolish the more than 40,000 houses standing vacant in Detroit neighborhoods. Some $430 million is promised to improve police and fire services, and response times to 911 calls. Detroit has been criticized for having some of the slowest police response times in the country.
Some retirees also will see their pensions cut by 4.5 percent. Cost of living allowances were reduced for retired police and firefighters.
The impact on retirees would have been more onerous if not for an $800 million promise from foundations, major corporations and the state to help soften cuts to their pensions while protecting city-owned pieces in the Detroit Institute of Arts from possible sale.
The “Grand Bargain” is the global transaction that involves the contributions of $366 million by the foundations, $100 million by the DIA and nearly 50 foundations, corporations and individual donors supporting the DIA, and $350 million by the State of Michigan, all for the benefit of City of Detroit pensioners and retirees; the conveyance by the City of Detroit to the DIA of all of the city’s interests in all museum assets, including the DIA’s encyclopedic art collection and building; and the commitment by the DIA to hold the museum assets in trust for the benefit of the residents of the City of Detroit, counties of Macomb, Oakland and Wayne, and the State of Michigan in perpetuity.
Honigman represented its longtime client the DIA in the negotiation and consummation of the “Grand Bargain,” as well all aspects of the DIA’s involvement in the City of Detroit bankruptcy proceedings.
“The consummation of the Grand Bargain as part of the city’s emergence from bankruptcy ensures that there are good days ahead for our city, our region and arts and culture in the century to come,” said DIA General Counsel Alan S. Schwartz and Joshua F. Opperer.
“The Grand Bargain is a remarkable achievement for all the parties involved and could not have materialized without the leadership of mediators Chief Judge Rosen and attorney Eugene Driker, the overwhelming generosity of the foundation community and the judgment, commitment and efforts of the DIA’s leadership, chairman Eugene A. Gargaro, director Graham W.J. Beal, COO Annmarie Erickson and CFO Robert Bowen,” said Schwartz.
Alan S. Schwartz, who has been general counsel to the DIA for more than 30 years, was senior counsel to the DIA in connection with the City of Detroit’s bankruptcy. Opperer, who serves as co-general counsel of the DIA with Schwartz, led the Grand Bargain transaction team. Also with substantial involvement with the Grand Bargain were Jonathan R. Borenstein (real estate), Charles Nida (nonprofit and probate), Barbara A. Kaye (corporate), Matthew J. Moussiaux (corporate) and John D. Pirich (government relations).
Arthur T. O’Reilly led the litigation team on behalf of the DIA. Also with substantial involvement with the litigation team were Jason Abel (litigation), Judy B. Calton (bankruptcy), Scott B. Kitei (bankruptcy), and John J. Rolecki (litigation). Also working on these matters for the DIA were Kirk Profit of Government Consultant Services Inc. as government relations advisor and Richard Levin of Cravath, Swaine & Moore LLP as special bankruptcy counsel.
The plan was reworked a number of times over the past year as the city reached deals with each group of creditors.
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