Detroit’s bankruptcy plan: A phoenix emerges

“THERE is an exciting feeling of a new beginning,” says John Pottow, a bankruptcy expert at the University of Michigan. After years of decline that ended in disaster when Detroit filed for bankruptcy last year, one of America’s biggest cities has been given a new lease of life. Today Steven Rhodes, a bankruptcy judge, approved Detroit’s plan for the adjustment of debts that will allow the city to slash $7 billion of unsecured liabilities off its $18 billion debt mountain.Detroit has a long history of mismanagement. But the handling of its bankruptcy so far has been a textbook example of efficiency and pragmatism. Much of the credit for getting Detroit back on track in less than 16 months must go to Kevyn Orr, the bankruptcy lawyer appointed by the state of Michigan to sort out the mess. Mr Orr had the powers of a “benevolent dictator”, says Mr Pottow, and he used them well. Under the agreement both pensioners and bond holders will take pain, albeit at varying degrees. The pensions of retirees will be cut by 4.5% and the cost-of-living adjustments (COLA) will go. Retirees from the police force and the fire brigade will have to live with a reduction in COLA from 2.25% to 1%.  Health-care benefits will be reduced by 90% for all retirees. Bond holders, such as Syncora, a bond insurer, had to accept a huge haircut. Syncora will get 26 cents on the dollar. Another …

Link to article: www.economist.com/blogs/democracyinamerica/2014/11/detroits-bankruptcy-plan?fsrc=rss

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