Rod Meloni: Magical Mystery Tour 2013

Detroit emergency manager plans to take creditors on tour of city's blight

Author: Rod Meloni, Local 4 Business Editor, @RodMeloni
Published On: Jul 04 2013 05:43:52 PM EDT   Updated On: Jul 05 2013 04:10:14 AM EDT
Rod Meloni - more 4 your money
DETROIT -

The Beatles took us on their magical mystery tour in 1967. It was a great album and a strange film.

The 2013 Detroit magical mystery tour will eclipse strange and move straight to depressingly sad. Next Wednesday several dozen big money Wall Street types will come to Motown and get a nickel tour the likes of which they have never in their lives even contemplated. These are the guys [and perhaps gals] that have said to Detroit Emergency Manager Kevyn Orr they don’t believe him when he says the City of Detroit is beyond broke, that 50 minute response times by police are the norm and that their demands of 100 percent of the debt owed are ridiculous.

Read: Detroit EM plans blight tour for creditors

These people usually handle Chapter 11 business bankruptcies and if they think there are assets being hidden they usually ask for a “tour of the plant” to see the operation, see the asset and decide what cash they can wring from the physical plant or operation. They have been asking Orr for just that. They have asked to see the City’s assets like the Detroit Institute of Art in the hopes they might convince a bankruptcy judge to force the sale of such things so they can get paid. It’s bare knuckle business that begins and ends by looking at a balance sheet. Orr’s spokesman Bill Nowling told Local Four News today Orr has no intention of showing the creditors the City’s assets that they can do on their own time and dime.

No, Orr wants them to see he is telling the truth when he says pennies on the dollar is all that exists. He wants them to see Gratiot and Grand River in their full, decaying disarray. He wants them to roll down Six and Seven Mile and through the Brightmoor neighborhood in a rickety DDOT bus using an armed escort and a hold harmless agreement as their only protection to truly grasp Detroit’s desperation. They will take the same trip many out of Towner’s have been taking for several years now in Detroit know as a “ruin porn tour.” It’s more than likely these investors have never been to Detroit, or if they have been here they only rode between the airport and Downtown seeing some blight and the train station that only gives them a flavor of the devastation. Kevyn Orr will NOT be on the bus with this tour and in fact, if you are a qualified Detroit tour guide, his office wants to hear from you.

There are many in the turnaround business that will look at this as a cheap stunt or an emotional appeal where none is necessary. Kevyn Orr is clearly doing his best to do neither. He is methodically creating a punch list like one you would make if you were taking possession of a newly constructed home. It lists of all the problems or concerns that need a checkmark next to them to show they have been completed.

Orr’s punch list precedes a Chapter 9 Municipal Bankruptcy filing and by law must show a Bankruptcy Judge at filing that the city is eligible to Chapter 9. In his filing he must show the City of Detroit is insolvent on a cash flow basis as of the filing and must desire to affect a plan to adjust debts.

He must also show one of the following requirements: "(A) has obtained the agreement of creditors holding at least a majority in amount of the claims of each class than the municipality intends to impair under a plan [a negotiated settlement with most creditors] (B) must have negotiated with creditors in good faith but has failed to reach an agreement, (C) is unable to negotiate with creditors, because to do so would be impracticable or (D) reasonably believes that a creditor may try and obtain an avoidable preference."

Everything the emergency manager has done, every move he has made in the past month is an opportunity to put checkmarks next to his punch list items. He is carefully preparing for any contingency with an eye toward a place he warned everyone involved he is quite comfortable with: bankruptcy court. But there are billions of dollars at stake, whether it’s New York suits or blue collar union employees and retirees. They are all spoiling for a fight and Orr knows it. So while some may view this blight tour on steroids as a waste of time, for Orr it just plays into his showing a good faith effort to prevent a Chapter 9 and he could not get cooperation.

This blog has repeatedly said Chapter 9 in inevitable, and there is little reason to believe that has changed. Orr is ready for that eventuality or any other scenario which will restructure the city’s gargantuan debt load. Every move he makes in the next month should be viewed through that prism.

So, Detroit’s magical mystery tour will go as scheduled next Wednesday. There is no way of knowing whether it will make much difference one way or the other but as someone who does so on a daily basis, it is difficult to drive through the rubble that masquerades as this city and not be moved at all. We shall see.