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Detroit bankruptcy hearing – Closing arguments

Tweets from the final day in the federal trial to determine if Detroit is eligible for Chapter 9 bankruptcy protection:

 

 

 

Detroit bankruptcy hearing – Day 8

It was the last day of testimony in Detroit’s bankruptcy eligibility hearing. Here are some tweets leading up to the closing arguments on Friday:

 

Detroit bankruptcy hearing – Day 7

It is a real hand-to-hand fight in Detroit as creditors seek to establish that emergency manager Kevyn Orr did not conduct “good faith” negotiations prior to filing Chapter 9 bankruptcy for the city. It’s surprising that the city is not arguing that there were too many creditors to negotiate. The bankruptcy code allows a debtor to use this provision to escape conducting negotiations. Here are tweets from Tuesday:

 

Detroit bankruptcy hearing – Day 6

The sixth day of Detroit’s bankruptcy eligibility hearing was about whether the city negotiated in good faith with creditors. Detroit’s emergency manager Kevyn Orr (@MotownEM) returned to the stand to continue his testimony. Orr was appointed emergency manager on March 14, 2013. Here is the coverage from journalists and others on Twitter:

 

Detroit’s bankruptcy hearing – Day 5

On Tuesday Detroit’s emergency manager Kevyn Orr returned to the witness stand to be grilled by creditor attorneys. This is likely to be some of the most important testimony of the eligibility trial.

Detroit’s bankruptcy hearing – Day 4

In day four of Detroit’s bankruptcy eligibility hearing some big issues with both state and federal ramifications were addressed. It was the first time in American history that a sitting governor was called to testify in a Chapter 9 municipal bankruptcy case.

The twitter handle for Michigan Governor Rick Snyder is @onetoughnerd. Detroit’s Emergency Manager, Kevyn Orr’s twitter handle is @motownem.

Detroit bankruptcy hearing – Day 2

If you want to follow Detroit’s historic bankruptcy trial, Twitter is the way to do it. The court does not provide a video or audio feed, but there is a scrum of excellent local and national reporters tweeting throughout the day. Here are some of the best tweets:

 

Detroit’s embedded time bomb

There are a lot of moving parts in the Detroit story as it goes through the largest municipal bankruptcy in U.S. history. The strangest part of the story has been the interest rate swaps that were layered onto the city’s 2005 and 2006 pension obligation bonds.

The purpose of the swaps was to lower the city’s borrowing costs by using interest-rate arbitrage. Theoretically, if financial conditions had remained “normal,” the swaps would have been beneficial for the city. Instead, Detroit’s credit rating was downgraded and the financial crisis upended the delicate conditions that underpinned the swaps.

On July 18th, when Detroit’s Emergency Manager Kevyn Orr filed for municipal bankruptcy, he also filed a proposed settlement with the swaps counterparties. Orr’s proposal would pay the counterparties – UBS and Bank of America Merrill Lynch – between 75 and 82 cents on the dollar to terminate the swaps and move them out of the picture. This action insulates UBS and Bank of America from the hatchet job that Orr plans to give to other creditors in the course of the bankruptcy process. Those unprotected creditors include bond insurer Syncora, which insured the interest-rate swaps and the underlying pension obligation bonds.

Detroit’s forsaken leaders

Being the emergency manager for bankrupt Detroit is no picnic. Coordinating the largest municipal bankruptcy in American history while simultaneously trying to restructure city operations, even with a posse of high-priced consultants, is a huge job. The current emergency manager, Kevyn Orr, wants to complete the bankruptcy and his term in 18 months. This is a recipe for inappropriate appointments, rich living and major mistakes.

Now the mayor of Detroit, Dave Bing, has weighed in with scathing comments about Orr’s performance. From The Detroit News:

Mayor Dave Bing reiterated Wednesday his growing frustration with how consultants and Emergency Manager Kevyn Orr have taken over City Hall and sidelined his team.

Detroit’s contentious swaps

The proposed settlement between Detroit’s emergency manager Kevyn Orr and the city’s swaps counterparties, UBS and Merrill Lynch, is on the docket this week in federal bankruptcy court where the case is being heard. The Bond Buyer reported:

Key hearings on #detroit‘s swap settlement originally set for this week may be delayed … parties in mediation. http://t.co/iyU2LuEoA9

— Caitlin Devitt (@Devitt_BB) September 23, 2013

Mediation could be a good alternative for the parties because this is a complex element of Detroit’s bankruptcy. Circling around the perimeter of this bankruptcy litigation and mediation is the bond insurer Syncora, which insured both the underlying pension obligation bonds and the interest rate swaps that are part of the negotiations between Orr, UBS and Merrill Lynch. Orr has worked to force Syncora, the bond insurer, out of the picture and essentially leave it responsible to pay off the pension obligation bonds without access to Detroit’s casino tax revenues. Syncora believes that it is legally entitled to access the casino revenues because it insured the pension obligation bonds, which have a cross-default covenant with the swaps.

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