Rod Meloni: Orr's 'cram down' creditors meeting
Friday is Detroit's very own D-Day as emergency manager meets with creditors
Friday is Detroit’s D-Day!
The sun will come up over Detroit Metro Airport as it always does. The larger question is whether the sun will shine on the City of Detroit after a daylong creditors meeting at the Airport Westin Hotel.
At 10 a.m. Detroit Emergency Manager Kevyn Orr will open up his $17 billion “cram down” meeting. That is bankruptcy parlance for getting a terrible deal crammed down your throat. Orr will be offering Detroit creditors pennies on the dollar to settle their accounts. No one wants to be there, no one wants to hear what Kevyn Orr is going to be peddling and yet the reality is the alternative is even worse: Chapter 9 Municipal Bankruptcy.
Rod Meloni: All roads lead to Chapter 9: Part II
This meeting really brings new meaning to the phrase "between a rock and a hard place." Sadly, this is the standard operating procedure in a bankruptcy proceeding. No one wants to concede bankruptcy is inevitable so they negotiate in the hopes of averting disaster.
Michigan’s emergency manager law requires a good faith effort negotiating a settlement before Chapter 9 is brought to bear. While it may be law, it only makes good sense to try. So that is what they will do Friday, try to find some friendly creditors who might actually be on board with taking the kind of haircut that leaves you looking like Telly Savalas did on Kojak!
Orr will challenge even the most optimistic among us. He will be bringing some heavy duty pain, but he will be telling everyone it’s that good kind of pain; the kind that leaves you better off in the long run.
Between 150 and 200 creditor representatives will sit down with Kevyn Orr and start leafing through a 200-page restructuring plan he drew up. He will likely slash hundreds if not thousands of jobs. Orr will look to privatize or sell off every department that is not related to public safety. The myriad union representatives who will attend this meeting will no doubt take a dim view of that as a solution.
Orr will look to bolster public safety because the city is at its heart a service provider. The big money bond holders have seen this coming and have likely written off most of their losses. Still they will want to recoup every nickel they can squeeze out of what is left of the city’s assets in or out of bankruptcy. The biggest concern is whether Detroit’s pension funds are funded adequately enough to pay pensioners in the future. They are supposed to be funded at 80 percent of payments owed. One actuarial review says they are well below that. Should this be the case, and Orr has said we will find out on Friday, it is entirely possible Detroit would have no choice but to file for Chapter 9. The reason: If the city’s pension plans cannot meet the federally mandated pension payments the only way to unravel that mess is in bankruptcy court. Do not pass go, do not collect $200. This is the kind of pain that will reveal the true tragedy of Detroit’s infamous demise.
Orr’s plan, I have been told, is the one and only one creditors will get. They can negotiate the price and perhaps nibble at the edges in the weeks to come. But, it is what it is. If negotiations fail it is the same plan Orr will bring to a bankruptcy judge in what would become the largest municipal bankruptcy in U.S. history. There is no getting around it, this will change Detroit forever. It is Orr’s hope that it rights the city’s finances once and for all.
Yet, it is the ultimate lesson to us all. Carrying the kinds of crushing debt Detroit has run up on its municipal credit card will mean genuine pain, particularly for pensioners who were counting on that income stream for the rest of their lives. Yes, the sun will come up Friday but, no, Detroit won’t have a lot of reason to rejoice. Everyone thinks they understand the kind of pain that is coming I’ll bet they don’t.
This cram down will be the stuff of legend as the sun sets on Detroit’s D Day.