Detroit Suspends Payments on Unsecured Debt (Sticking It To Bondholders … Like GM)

JUN 14

Posted by fleetwoodwalker

June 14 (Bloomberg) — Detroit will suspend payments on unsecured debt, beginning with a $39.7 million installment due today, Emergency Manager Kevyn Orr said as he outlined a plan to avoid a record municipal bankruptcy. The city would create a regional water agency and retirees would see pensions reduced to cover liabilities under the deal, Orr offered to more than 100 creditors and employee-union representatives today in a hotel at Detroit Metro Airport. The city also would spend $1.25 billion over a decade to improve services and eliminate blight.

Here is Orr’s proposal to creditors. detprop.

According to Orr’s 66-page proposal, unsecured debt includes:
— $5.7 billion in post-retirement benefits.
— $2 billion for unfunded liability for the general employees pension.
— $1.43 billion in pension obligation certificates.
— $1.4 billion in unfunded police and fire pension liabilities.
— $369.1 million in unlimited tax general-obligation bonds.
— $265 million in unsecured loans.
— $161 million in limited tax general-obligation bonds.
— $33.6 million in notes and loans.

Detroit, where officials struggle to provide public safety and even street lights, joins California cities Stockton and San Bernardino in trying to stick bondholders with a loss. Jefferson County, Alabama, on June 5 reached an agreement to end the current record municipal bankruptcy by offering its largest creditors 60 percent of what they’re owed.

So, Detroit is “restructuring” its debt rather than pursuing an outright default … yet.

But this is reminiscent of General Motors sticking it to bondholders to protect employee pensions. But at least Orr is proposing the retirees share in the pain.

With the City retiree pool currently outnumbering active employees by an over-2 to 1 margin and growing, the City must address pension and retiree/healthcare liabilities as part of any comprehensive restructuring.

Loaning money to Detroit is an extraordinarily bad idea. Just ask GM bondholders.