Detroit emergency manager gives options

DETROIT — Detroit emergency manager Kevyn Orr said Tuesday he could force a legally binding settlement on the city’s creditors if they were unwilling to accept a proposed restructuring plan in bankruptcy court.

The “cram down” provision of federal bankruptcy law allows a judge to approve a plan of restructuring over the objections of creditors, so long as at least one impaired class of creditors votes to confirm it.

“We hope to reach a negotiated solution even now,” Orr said as he took the witness stand on the fifth day of a trial to determine whether Detroit is eligible for Chapter 9 municipal bankruptcy. “If we don’t, we will address that situation, and, certainly, ‘cram down’ is an opportunity available to us.”

If U.S. Bankruptcy Judge Steven Rhodes, who is overseeing the case, finds Detroit eligible for bankruptcy, the city will need to submit a plan of readjustment that must be approved by the court.

Detroit filed the largest municipal bankruptcy in U.S. history July18. But at a June 14 meeting with its creditors, the city proposed offering its unsecured creditors, who are owed about $11.9 billion, pennies onthe dollar through a $2 billion note issue. Those creditors include city pension funds, retirees, bondholders and bond insurers.

To be eligible for Chapter 9 bankruptcy, the city must prove it is financially insolvent, that it negotiated in good faith with creditors, or that there were too many creditors to make negotiation feasible. It also must establish that it has a desire to restructure its finances.