Exit Strategy: Anatomy of the Deal



March: Michigan’s Public Act 4 Emergency Manager Law approved, giving state-appointed overseers of financially troubled cities the power to repeal contracts and make other unilateral moves usually reserved for locally elected officials.

November: Detroit Mayor Dave Bing says the city will run out of cash by April 2012 and have a shortfall of $45 million by June 30.

December: State Treasurer Andy Dillon recommends Gov. Rick Snyder send a team to review city finances.


March: A proposed consent agreement is given to the City Council. Moody’s downgrades the city’s tax debt. A state review team declares a “severe financial emergency.”

April: The City Council votes 5-4 in favor of a consent agreement with the state and the creation of a nine-member Financial Advisory Board to oversee fiscal restructuring. Snyder and Bing sign the agreement.

August: A proposed repeal of Public Act 4 is placed on the Nov. 6 ballot and the law is suspended. Public Act 72, the prior 1990 law that grants fewer powers to emergency financial mangers, is reinstated.

November: Voters repeal Public Act 4 in the general election.

December: The Financial Advisory Board calls for a 30-day review of city finances under Public Act 72, fearing Detroit would run out of money by the end of the year. Snyder appoints a six-member review team.

December: The Legislature approves and Snyder signs into law a new emergency manager bill — Public Act 436 — that allows fiscally struggling cities and school districts to choose from mediation, a consent agreement with the state, a state-appointed emergency manager or Chapter 9 bankruptcy.


January: An audit shows Detroit has a $327 million accumulated deficit as of June 30.

February: The review team unanimously concludes Detroit failed to restructure its debt and intervention from Snyder is needed to resolve the city’s financial problems.

March: Snyder appoints Kevyn Orr as Detroit’s emergency manager. Opponents of Public Act 436 file a lawsuit arguing the legislation deprives residents of “constitutionally protected rights” and dilutes their vote. Later, Public Act 436 goes into effect, granting broader powers to Orr and other emergency managers statewide.

May: Orr submits a preliminary financial and operating plan to the state Treasury Department, saying Detroit’s cash-flow crisis makes it insolvent and unable to borrow more money.

June: Orr unveils to creditors his plans to restructure the city’s finances and avoid bankruptcy.

July: The city files a lawsuit in an attempt to recover $11 million a month in casino payments and taxes that Detroit claims are being improperly withheld by an insurance company, a move the city says threatens its efforts to restructure its staggering pile of debt. The city’s two pension funds sue Snyder on July 17 to block him from authorizing what would be the biggest municipal bankruptcy in U.S. history.

July 18: Orr files a petition for municipal bankruptcy in U.S. District Court’s Eastern District in Detroit. The next day, U.S. Bankruptcy Judge Steven Rhodes is assigned to Detroit’s bankruptcy. He freezes all lawsuits against the city challenging the legality of Detroit’s bankruptcy filing, clearing a path for the city to begin to prove its insolvency warrants protection from creditors.

August: Orr announces he has contracted with Christie’s Appraisals, the New York-based international auction house, to appraise the collections of the Detroit Institute of Arts. Rhodes creates a committee to represent city retirees in the city’s bankruptcy case. The judge also says he wants a mediator and fee examiner.

August 13: District Judge Gerald Rosen of the U.S. District Court for the Eastern District of Michigan is appointed to mediate disputes between the city and creditors. A nine-member retiree committee is appointed on Aug. 22 to represent more than 23,500 municipal workers during the city’s bankruptcy case.

October: Orr says the city has secured a $350 million loan from Barclays to pay off an interest rate swap agreement with UBS AG and Bank of America tied to $1.4 billion in pension-related debt. Snyder testifies in Detroit’s bankruptcy eligibility trial on Oct. 28. Snyder is believed to be the first Michigan governor in modern history to testify under oath in open court.

November: Rosen explores whether regional and national foundations could create a fund that would protect the Detroit Institute of Arts’ city-owned collection by helping to support retiree pensions. (Continued on page 69)

December: A report from Christie’s of 1,741 items in the DIA’s more than 66,000-piece collection values the city-held objects at between $452 million and $886 million. An earlier preliminary estimate pegged the value at $454 million to $867 million.

December 3: Rhodes rules Detroit is eligible to file for Chapter 9. Later, Orr and lawyers for UBS AG and Bank of America reach a new $165 million agreement to terminate the pension debt deal during a court-ordered Christmas Eve mediation.


January: Mike Duggan takes office as Detroit’s 75th mayor on Jan. 1.  Rhodes, on Jan. 16, rejects the renegotiated $165 million swap termination agreement.

January: Attorney General Bill Schuette on Jan. 27 asks the 6th Circuit U.S. Court of Appeals for an expedited decision on whether Michigan’s constitution protects pensions in Detroit’s bankruptcy case. Snyder announces plans to pour $350 million into Detroit’s pension funds over two decades. The state pledge would match a $330 million contribution from nine private foundations toward a fund to aid pensioners and keep city-purchased art at the Detroit Institute of Arts off the auction block.

January 29: The DIA vows to raise $100 million to help save masterpieces from being sold in bankruptcy. A draft of the city’s preliminary plan of adjustment to reduce the city’s $18 billion in debt goes out to creditors, detailing health care concessions from retirees and a proposal to spin off the city’s water department to a regional authority.

February: Attorneys for the city reveal in bankruptcy court on Feb. 19 that a third settlement has been reached with two banks to end the city’s troubled pension debt. Rhodes on Feb. 21 grants permission for city’s pension funds and others to file direct appeals of the city’s bankruptcy for Chapter 9 bankruptcy relief.

March: The City Council votes in favor of a proposed $120 million loan for improvements to city services. The panel approved, by a 6-3 vote, the deal reached by Orr to borrow from the London-based investment bank Barclays.

April: Rhodes approves the $120 million loan to pump money into city services as part of the city’s restructuring, and later approves an $85 million settlement of a pension-related debt deal with UBS AG and Bank of America. The Police and Fire Retirement System vote to support a mediation settlement that would spare its members from pension cuts, but is not yet on board with the city’s full plan.

June: The Michigan Legislature signs off on the state’s participation in Detroit’s bankruptcy “grand bargain,” approving $195 million in aid for Detroit pensioners and long-term oversight of city finances. The city’s General Retirement System board votes June 11 to endorse Detroit’s bankruptcy plan of adjustment and urges its retirees to affirm the plan to prevent steeper cuts to pensions.

July: Retired and current city workers officially approve modest reductions in their pensions, but at least four classes of creditors vote to reject the city’s cost-cutting plan.

August: Rhodes takes an unprecedented bus tour of the bankrupt city. The city secures up to $275 million in financing — money that will help bankroll Detroit’s restructuring and pay off debts if the city successfully emerges from bankruptcy court.

September: Opening statements begin Sept. 2 in Detroit’s historic bankruptcy trial. On Sept. 9, Detroit reaches a settlement with bond insurer Syncora Guarantee Inc. Also, a deal is announced between the city and Wayne, Oakland, and Macomb counties to create a regional water authority.

September: After 18 months under emergency management, the Detroit City Council passes a resolution that transfers power back to Detroit’s elected leaders. They keep Orr in place for bankruptcy-related duties until the city’s Chapter 9 case concludes.

September: The state loan board on Sept. 26 approves $1 billion in loans for Detroit, including $325 million in exit financing.

October: The city reaches a settlement with its largest remaining creditor, Financial Guaranty Insurance Co. The deal settles the bond insurer’s $1.1 billion claim tied to a troubled pension debt.

October: Court-appointed expert Martha Kopacz testifies in the city’s bankruptcy trial that Detroit’s plan is feasible, but warns that elected officials need to be on board for it to work.

October: The City Council passes a resolution approving the city’s settlement with FGIC. President Brenda Jones casts the lone “no” vote.

October: The city’s historic bankruptcy trial wraps up Oct. 27. U.S. Bankruptcy Judge Steven Rhodes says he will deliver a decision in November on whether to reject or approve the city’s plan.

November: Rhodes, on Nov. 7, approves the Ch. 9 exit strategy, and Orr begins to wind down the historic bankruptcy.