ROMULUS, Mich. – A team led by a state-appointed emergency manager said Friday that Detroit is defaulting on about $2.5 billion in unsecured debt and is asking creditors to take about 10 cents on the dollar of what the city owes them.
Kevyn Orr spent two hours with about 180 bond insurers, pension trustees, union representatives and other creditors in a move to avoid what bankruptcy experts have said would be the largest municipal bankruptcy in U.S. history.
Underfunded pension claims likely would get less than the 10 cents on the dollar.
An assessment of the plan’s progress will come in the next 30 days or so.
Orr also announced that Detroit stopped paying on its unsecured debt Friday to “conserve cash” for police, fire and other services in the city of 700,000 people. The debt not being paid includes $39 million owed to a certificate of participation.
“We will not pay that today,” Orr told reporters after the meeting with creditors at a hotel at Detroit Metropolitan Airport in Romulus.
His team said the proposal is the one shot to permanently fix fiscal problems that have made the city insolvent.
Orr said everyone involved needs to come to grips with Detroit’s dire financial situation that has been worsened by years of procrastination and denial.
“If people are sincere and look at this data, you would think a rational person will step back and say, ‘This is not normal … but what choice do we have?'” Orr said.
The city’s budget deficit could top $380 million by July 1. Orr believes long-term debt tops $17 billion.
The Washington-based bankruptcy attorney hired by Michigan in March reiterated that the chances of bankruptcy are 50-50 for Detroit, the largest U.S. city placed under state oversight.
The city will not be able to back up some promises related to pension and post-employment health care and benefits. Orr is proposing a $27 million to $40 million health care replacement program that will partially rely on the federal Affordable Health Care Act, health exchanges and Medicare.
He also said $1.25 billion will be set aside from concession savings over 10 years for public safety, lighting and eliminating neighbourhood blight.