Detroit wants to propose bankruptcy plan by Dec. 31

By Ed White

Associated Press

DETROIT (AP) -- By the end of the year, Detroit wants to submit a plan to emerge from bankruptcy, an attorney said last Friday, an aggressive timetable that's two months earlier than a judge proposed for a city hoping to shed billions of debt.

U.S. Bankruptcy Judge Steven Rhodes held the second hearing since Detroit became the largest city to file for Chapter 9 protection two weeks ago. It mostly was a housekeeping docket, with key deadlines and dates discussed, but also served as a forum for Rhodes to encourage all sides to keep talking about ways to settle debts.

Detroit claims it has at least $18 billion in liabilities, from underfunded pensions and health care costs to bonds that lack city revenue to be paid off.

Rhodes gave creditors a week to privately file opinions on the appointment of a mediator, Detroit chief federal judge Gerald Rosen, but said he strongly believes it's a good idea.

"Consensual resolution is in the best interest of the citizens of the city of Detroit," Rhodes said, adding that it could be hard for a "strong, vibrant" city to emerge if the parties turn to "long, bitter litigation."

A deal is "better than a cram-down" from the court, the judge said later.

David Heiman, an attorney for Detroit, agreed and said the city and some unsecured creditors have been talking regularly, although significant differences remain. He said the city hopes to submit a plan by Dec. 31 to emerge from bankruptcy.

"Our view is that time is our enemy," Heiman said. "The facts are not going to change."

Nonetheless, there still are many hurdles.

Rhodes, for example, has to determine whether Detroit is even eligible for bankruptcy. Creditors will have an opportunity to argue that the city hasn't negotiated in good faith. A multi-day trial on the eligibility question has been proposed for Oct. 23.

And there's another critical issue: Michigan's constitution bars breaking public pensions, which are a key part of the city's liabilities. Rhodes agreed that a committee should be formed to represent the interests of more than 20,000 Detroit retirees. The committee will have a professional staff, and the city will foot the bill.

Babette Ceccotti, an attorney for the United Auto Workers, said key dates proposed by Rhodes "might be too aggressive." And a lawyer who represents Detroit's pension funds said mediation could be too early without a better look at the city's finances.

"We want to caution against expediency merely for the sake of expediency. ... The stakes are high," Robert Gordon told Rhodes.

The judge opened the hearing in an unusual way, declaring to the public that he doesn't run Detroit. It wasn't clear what motivated him to make the statement.

"The city's elected and appointed officials remain in full control of the city and its operations," Rhodes said, adding that any complaints or compliments should go to City Hall.

Detroit is being run by emergency manager Kevyn Orr, a bankruptcy specialist appointed in March by Michigan Gov. Rick Snyder.

Published: Tue, Aug 6, 2013