Creditors of the bankrupt city of Detroit argued in court yesterday that municipal authorities were being too secretive about how they came to strike a “grand bargain” deal that would pay its pensioners more than financial creditors, preserve its historic art collection and slash more than $7 billion in debt while reinvesting $1.4 billion in services.
On the opening day of a court hearing to decide whether to approve the city’s plan to exit its record $18 billion municipal bankruptcy, two of its most vociferous opponents, the bond insurers Syncora and Financial Guaranty Insurance Company (FGIC), said that were not given the opportunity to review evidence from the meetings.
They asked the court to prevent the authorities presenting “selective” details of mediation talks that led to the grand bargain. Edward Soto, a lawyer for FGIC, said that his client would be hurt if the city were allowed to present to the court secret evidence from the sessions. “The city cannot be able to use this court’s (mediation) order as a sword and a shield,” he said.
US bankruptcy Judge Steven Rhodes rejected the request, but said that the two bond insurers could bring up objections later in the hearing.
The two companies previously stated that the grand bargain was illegal and amounted to unfair discrimination in favour of pensioners. Most other creditors, including more than 30,000 retirees and city employees, have endorsed the plan, which would enable Detroit to cut $12 billion in unsecured debt to about $5 billion.
Advertisement
The trial marks the culmination of years of ruinous municipal financial decision-making at the once booming motor town, whose population has declined from 1.8 million in the 1950s to 700,000.
The grand bargain would allow the city to accept the equivalent of $816 million over 20 years from the state of Michigan, non-profit foundations and Detroit Institute of Arts donors to reduce pension cuts and transfer the museum to a charitable trust.