Bankruptcy News

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Bankruptcy/Chapter 11 / Bonds

City of Detroit Plan Filed

The City of Detroit filed with the U.S. Bankruptcy Court a Plan for the Adjustment of Debts and a related Disclosure Statement. The Disclosure Statement explains, “The Plan contemplates the City’s emergence from chapter 9 this year and represents a crucial step toward the City’s rehabilitation and recovery from a decades-long downward spiral….The City settled controversial and sensitive issues relating to the Detroit Institute of Arts (the ‘DIA’), which settlement is expected to yield at least $465 million to provide a source of recovery for the approximately 33,000 individuals who participate in the City’s retirement systems - the General Retirement System and the Police and Fire Retirement System (together, the ‘Retirement Systems’) - and negotiated a settlement with the State of Michigan (the ‘State’) that Holders of Pension Claims may, in certain circumstances, elect to accept. Except in the case of subordinated Claims, the Plan provides a recovery to all classes of Claims. The Plan also allows for critical and meaningful investment in the City of approximately $1.5 billion over ten years in order to, among other things: (1) provide (and improve) basic, essential services to City residents; (2) attract new residents and businesses to foster growth and redevelopment; (3) reduce crime; (4) demolish blighted and dangerous properties; (5) provide functional streetlights that are aligned with the current population footprint; (6) improve information technology systems, thereby increasing efficiency and decreasing costs; and (7) otherwise set the City on a path toward a better future….The Plan provides that, on the Effective Date, the City will assume the obligations related to the already accrued benefits under the GRS pension plan and the PFRS pension plan as those benefits will have been modified in the Plan. This means that the City will not seek to terminate the GRS or the PFRS. The City will continue to retain the responsibility to fund all amounts necessary to provide the adjusted (reduced) pension benefits to its employees and retirees who will have accrued benefits in either of the GRS or PFRS pension plans as of the Effective Date, although the City’s contributions will be fixed during the period ending June 30, 2023. Thereafter, the City will be required to contribute all amounts necessary to fund the modified accrued pensions regardless of the actual future investment performance of the pension plan assets….In the List of Claims, the City set forth what it believes is a more realistic total UAAL for the Retirement Systems of $3.474 billion, consisting of $2.037 billion in UAAL owed to the GRS and $1.437 billion in UAAL owed to the PFRS.” In a joint statement, Detroit’s mayor, Mike Duggan, and city council president, Brenda Jones, explain, “The Plan of Adjustment is a sober reality check for our city. While some city services would receive much needed help, it is no surprise there will be difficult decisions ahead that affect residents, city workers and retirees….Our city’s future depends on our ability to grow its tax base, maximize efficiencies and manage costs. That is why we are united in our commitment to delivering a level of service that allows our city to retain and attract residents, grow businesses and encourage other forms of investment.”

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