Detroit files its bankruptcy plan in federal court

BY Margaret Myers  February 21, 2014 at 12:49 PM EDT
Detroit filed its bankruptcy exit plan in federal court Friday.

Detroit filed for for Chapter 9 protection in July.

Detroit filed its bankruptcy strategy in federal court Friday morning. The comprehensive plan, drafted by state-appointed emergency manager Kevyn Orr, details how the city will restructure its $18 billion debt through cuts to pensions and creditors, and emerge from the largest municipal bankruptcy in U.S. history.

“My advisers and I have now expended many months in negotiations, including within bankruptcy court-mandated mediations, with all classes of creditors to get to this point, and we are satisfied with the progress made thus far,” Orr said in a statement. “However, there is still much work in front of all of us to continue the recovery from a decades-long downward spiral. We must move swiftly to emerge from bankruptcy so that the financial distress harming the City can end.”

The plan for the adjustment of debt calls for 34 percent cuts to pensions of general city retirees and 10 percent pension cuts to police and fire retirees. But those cuts would be reduced to 26 percent and 4 percent, respectively, if the city’s two independently controlled pension boards agree to support the plan of adjustment, the Detroit Free Press reports. The city proposed paying secured bondholders 100 percent of what they’re owed, while general obligation bondholders would receive 20 percent.

Another major role of the plan is to free up cash so the city can address some of its long-running public safety concerns, with $520 million earmarked for bolstering city services and demolishing abandoned homes.

Despite the filing, the city still faces numerous obstacles as negotiations with creditors continue. And questions still remain over the fate of the city’s valuable art collection. The plan would prevent the sale of masterpieces from the Detroit Institute of Arts, but several steps must be met before a final settlement.

Detroit declared bankruptcy in July.