Justice approves the plan for Detroit to exit bankruptcy

“What happened in Detroit must never happen again “. It is by this sentence in the end, judge Steven Rhodes on Friday 7 November, concluded the chapter of the most painful parts of the capital of the american automobile, on a judgment approving a plan to exit the city from bankruptcy.

After a little less than sixteen months of negotiations, the justice has given its green light to the renegotiation of the huge debt of Detroit, considering it legally reasonable, just and fair for the thousands of creditors of the city.

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This plan aims to put an end to the vicious circle in which Detroit came back in recent years. The collapse of its population, the reduction inexorable tax revenue at the pace of industrial decline, ubiquitous corruption and mistakes of management had led the city to bankruptcy.


The plan provides for the erasure of almost one-third of the debt ($7 billion of the 18 billion accumulated over time). In return, the city’s finances are put under surveillance, while the administration will be the subject of a comprehensive restructuring. A portion of the available funds ($1.7 billion) will be invested in the services completely decayed, such as firefighters or the police. Here, it is necessary to repurchase the vehicle, then re-level it services become obsolete. The plan also provides a pane real estate to rehabilitate some 80,000 buildings have been abandoned due to lack of resources.

Judge Rhodes warned the city’s mayor, Mike Duggan, so as not to spoil the opportunity of a “new start “. “It is now time to restore democracy to the people of Detroit “, he launched solemn. “The inability of Detroit to provide municipal services to the more essential “ is a situation “inhumane and intolerable, which must be adjusted. This plan solves these problems “said the judge.

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It is the fruit of a real balancing act between the requirements of the different parties, an equation which has still a lot of unknowns. Retirees of the municipal services have thus had to accept a significant drop in their pension. Decrease of 4.5%, not to mention that they will not be indexed on the evolution of the cost of living and that the reimbursement of health costs will now be less generous.

Solutions are inevitable to cope with a serious imbalance : the municipal services have two retirees for an asset. A situation that is explained by the dramatic fall in numbers, which have shrunk by 53 % since 1970. The retirees of the police and firefighters have also agreed to sacrifices, even if those are less important : their pension will be lower than 2.25 %. Of the conditions that were approved last summer in a referendum.


This lesser evil was obtained great a “great bargain “who has been able to achieve thanks to the contributions of private donors and the State of Michigan, which will inject 816 million in various pension funds of the city for a period of 20 years. A negotiation which also allows to save the museum of Detroit and its prestigious collections.
Creditors are also required to make substantial efforts.

And sometimes the pill has not been obvious to swallow, such as for the insurer Syncora, which will only get hold of finally, 14% of his bet. With another creditor, Financial Guaranty Insurance Co., the group had tried to show that the procedure was illegal because it favored pensioners to the detriment of creditors. But they have come to accept this plan, as the two main exposed banks, UBS and Bank of America Merrill Lynch.

“Detroit has a great future “, is now offering Rick Snyder, the republican governor of Michigan, during a press conference on Friday while stressing that“there’s still work to be done “. It is the least we can say. Almost everything is back on foot in this city which, in sixty years, has lost half of its population. A year ago, 40 % of streetlights were not working and the response time of police to emergency calls was on average 1 h 30. Since then, significant progress has been made, ” says Kevyn Orr, the public administrator appointed by the governor in April 2013 to negotiate with creditors. A thousand new street lights have been installed, the responsiveness of emergency services is improving little by little and hundreds of ruined buildings have been demolished.

On the legal front, Mr. Orr gave the control of the city mayor, Mike Duggan, who remains under surveillance. Over the next decade, the city will be accountable to a Commission charged with overseeing municipal finances. It will be flanked by an investment committee that chapotera the two pension funds of the city. Judge Rhodes has called the plan “ideal model for future debt restructurings “. Rest now in Detroit to rebuild.

See also our interactive visual : Detroit : the fall of “Motor City”