The Canadian Press - ONLINE EDITION
Posted: 09/3/2014 9:29 AM | Comments: 0
Last Modified: 09/3/2014 5:26 PM
DETROIT - An attorney for one of Detroit's creditors told a judge overseeing the city's historic bankruptcy Wednesday that Detroit could afford to pay 75 cents on the dollar to settle its debt if it sold some masterpieces from the art museum.
But an attorney for Detroit told federal Judge Steven Rhodes in his opening statement that the debt-restructuring plan focused first on resolving a dire financial situation and does not discriminate against creditors.
Syncora Guarantee attorney Marc Kieselstein said the debt-restructuring plan would pay some creditors less than 10 cents on the dollar. Rhodes asked Kieselstein the percentage he believed Detroit could offer the New York-based bond insurer and where the money would come from.
"There's the art," Kieselstein said, referring to city-owned artwork at the Detroit Institute of Arts. "You could sell one or two pieces. You can finance some of the pieces to get that number."
Detroit wants to cut $12 billion in unsecured debt to about $5 billion through its plan of adjustment, which must be approved by Rhodes. Most creditors, including more than 30,000 retirees and city employees, have endorsed the plan of adjustment.
Syncora, who has said its claims are about $400 million, is not one of those creditors, and has said Detroit's blueprint for emerging from the largest municipal bankruptcy in U.S. history is unfair for financial creditors.
The trial's second day began with attorney Bruce Bennett explaining that the plan, put together by state-appointed emergency manager Kevyn Orr and his restructuring team, has to be followed in order for Detroit to be stronger and viable.
"The city did all of this with the proper purpose of restructuring its financial affairs," Bennett said, adding, "The facts will show Detroit has earned this court's help."
During his opening statements, Kieselstein characterized the city's plan "so flawed in its structure, so dismissive of basic fiduciary duties and so lacking in evidentiary support that it cannot be confirmed without doing serious mayhem to the rule of law."
The threat of selling the artwork prompted the creation of the so-called Grand Bargain — commitments from the state, major corporations, foundations and others to donate more than $800 million over 20 years to soften cuts to city pensions while placing pieces in the museum into a trust and out of the reach of debtor demands.
Pensioners this summer voted in favour of Orr's plan, which calls for general retirees to take a 4.5 per cent pension cut and lose annual inflation adjustments. Retired police officers and firefighters would lose a portion of their annual cost-of-living raise.
Opening statements will continue Thursday.
The trial is likely to take a number of days. Dozens of witnesses are expected to be called — including Orr and possibly Detroit Mayor Mike Duggan. About 12 creditors are opposing the plan in court.
Associated Press writer Jeff Karoub contributed to this report.
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