Monday, September 01, 2014

One Judge to Decide the Future of Detroit

By MONICA DAVEY and MARY WILLIAMS WALSH, NYT
AUG. 31, 2014

DETROIT — In a trial set to open in the federal courthouse here on Tuesday, nothing short of this city’s future is at stake.

If Judge Steven W. Rhodes approves a blueprint drawn up by Detroit officials to eliminate more than $7 billion of its estimated $18 billion in debts and to invest about $1.5 billion into the city’s now dismal services, it will mark the beginning of the end of the nation’s largest-ever municipal bankruptcy. The outcome will set this troubled city’s new course for the coming decades, perhaps longer.

In deciding whether the city’s plan is equitable, feasible and in the best interest of creditors, Judge Rhodes will send significant messages beyond Detroit about the rarely tested powers and limits of municipal bankruptcy, at a time when many cities are struggling with underfunded pensions, neglected infrastructure and declining industries.

Municipal bankruptcy, known as Chapter 9, was designed to give creditors, and even judges, less power than Chapter 11 corporate bankruptcy does, but the law has never before been tested on this scale. Leaders of other cities will be watching closely, turnaround experts said, as the judge decides whether a city may shelter municipal retirees even as it imposes harsher losses on financial creditors; whether it can use bankruptcy to repudiate some capital-markets debts entirely; and whether a city in bankruptcy may avoid selling off valuable assets to raise money for its creditors, as Detroit hopes to do with its art collection.

(More here.)

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