Emergency manager: Detroit won't pay $2.5B it owes

CBS News ^ | 06/15/2013

[SeekAndFind]

A team led by a state-appointed emergency manager said Friday that Detroit is defaulting on about $2.5 billion in unsecured debt and is asking creditors to take about 10 cents on the dollar of what the city owes them.

Kevyn Orr spent two hours with about 180 bond insurers, pension trustees, union representatives and other creditors in a move to avoid what bankruptcy experts have said would be the largest municipal bankruptcy in U.S. history.

Underfunded pension claims likely would get less than the 10 cents on the dollar.

An assessment of the plan's progress will come in the next 30 days or so.

Orr also announced that Detroit stopped paying on its unsecured debt Friday to "conserve cash" for police, fire and other services in the city of 700,000 people. The debt not being paid includes $39 million owed to a certificate of participation.

"We will not pay that today," Orr told reporters after the meeting with creditors at a hotel at Detroit Metropolitan Airport in Romulus.

More than 42 percent of Detroit's 2013 revenue went to required bond, pension, health care and other payments. If the city continues operating the way it did before Orr arrived, those costs would take up nearly 65 percent of city spending by 2017, Orr's team said.

The team also said the proposal presented Friday is the one shot to permanently fix fiscal problems that have made the city insolvent.

Orr said everyone involved needs to come to grips with Detroit's dire financial situation that has been worsened by years of procrastination and denial. He said his team is prepared for potential lawsuits from creditors not pleased with the arrangements under the plan.

[genghis]

nice post
seems correct
thank you

[genghis]

nice advice
it is going to be interesting

[867V309]

QE is taking care of that.

[GeronL]

The best thing the creditors can do is to stop doing business with a deadbeat. When they can no longer hire any contractors they might get a clue.

[GeronL]

That is easy, we have to inflate the currency to make a dollar then worth a dime now.

[packrat35]

Its called bankruptcy and happens everyday in the US. If there is no money, they can’t pay and that is not going to change.

[catnipman]

This is simply a desperate attempt to avoid formal bankruptcy in an effort to preserve union contracts. In a formal bankruptcy, union contracts could be abrogated, and the bankruptcy trustees would be in a a very awkward spot if they chose to screw everyone BUT the unions.

[Jimmy Valentine]

The unsecured creditors should put Detroit into an involuntary bankruptcy and have a court appointed administrator assemble a creditors committee to administer the city’s assets and revenue. The first step would be to send the City council home. Step two a full audit to examine revenues and root out corruption

[BfloGuy]

The credit/bond rating agencies have changed the standard by which pension obligations must be accounted for. A huge number of state, local and unions (and corporations) are going to find themselves so far underwater that there is going to be a run on the Pension Benefit Guaranty Corp. That will be the bailout of all bailouts.

As they say in England, no worries, mate!

The Fed will just print the money. To maintain stability in the markets, of course. And, yeah, food will go up another 5% and gas prices will rise but they're not counted in the CPI [too volatile] so the effect will be nil.