(WXYZ) - Detroit's Emergency Manager is telling creditors the city can only afford to pay about ten cents on the dollar on unsecured debt. Some other unsecured debt will be offered less than that.
The city is also beginning a moratorium on all debt service payments for unsecured debt to conserve cash and keep the city operating.
EM Kevyn Orr's presentation to 150 creditors gathered at the Westin Hotel at Detroit Metro Airport includes consultants hired by the City of Detroit before Orr took over, Ken Buckfire from Miller Buckfire Investment Bank and Bruce Bennett from the Jones Day law firm.
Active and retired Detroit City employees will get their own briefing on these proposed concessions at a session to be scheduled for next Thursday. They stand to see reductions in their health care coverage and pension benefits.
In fact, Orr and Bennet say Michigan constitutional guarantees of pension benefits for public employees don't exist and said that will lead to negotiations and possibly litigation.
They also called litigation not a rational approach. New numbers released by Orr this morning shows Detroit's long term debt is about $17 billion.
Key figures in materials being given to creditors show retiree health care owed is $5.7 billion, underfunding to the police and fire pension fund is $1.4 billion and underfunding to the general retirement system is $2 billion. Some debts are secured including $5.8 billion in water and sewer bonds paid for by revenue from that system.
Orr also revealed that the water department could be moved to a new authority run by the city and the counties it serves. The plan would include a price tag still not determined and an annual amount going to the city, which would still own it.
It would be similar to the authority established to run Cobo Center a few years ago. No other assets are under consideration for sale. On the positive side, Orr is proposing spending $1.25 billion over the next ten years to improve the city including public safety and blight.
Orr says he wants to do Detroit restructuring only once so that it can have a sustainable future. Orr has said creditors can take the materials given to them today and digest them but he wants to know within the next month if they are willing to take concessions.
If not, Detroit could move into Chapter 9 Bankruptcy which would be the largest in history.
"[Orr]’s got to keep hopes up that he can resolve it without a bankruptcy," said bankruptcy attorney Douglas Bernstein, "But at the same time, he also has to be preparing for the possibility that they’ll not be able to reach a compromise.I really think a resolution with the pension is absolutely necessary for the city to avoid bankruptcy."
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