The city of Detroit was set to pay off creditors on Wednesday as it officially exits the biggest municipal bankruptcy in U.S. history.
Following are steps leading to the city’s “rock bottom” point of December 2013, when it was declared eligible for Chapter 9 municipal bankruptcy, and milestones in the ensuing court process and bankruptcy exit.
– Detroit’s descent into fiscal insolvency can be traced back to the waning days of long-time Mayor Coleman Young’s administration (1974-93), when the city was already deep in debt and struggling with a budget deficit. Both Young and the Michigan state treasurer raised concerns over potential bankruptcy. Moody’s Investors Service cut the city’s debt rating to “junk” in July 1992.
– Mayor Dennis Archer’s administration (1994-2001) brought a mini-renaissance, as new developments including casinos and baseball and football stadiums bolstered the city’s budget. Credit ratings rose to solid investment-grade levels.
– Budget deficits and late financial audits popped up during Mayor Kwame Kilpatrick’s term (2002-08), prompting city officials to fret about a potential takeover by the state of Michigan. Credits ratings on some of the city’s bonds fell again into the “junk” category. In September 2008, Kilpatrick left office after pleading guilty to obstruction of justice charges. Former basketball star Dave Bing won the May 5, 2009, election for mayor.
– The U.S. Census reported in March 2011 that Detroit’s population fell in 2010 to 713,777 – a 100-year low and a 25 per cent decline from 2000. The drop threatened key tax revenue sources that were tied to a population of at least 750,000.
– Michigan Governor Rick Snyder in June 2011 signed legislation allowing Detroit to continue collecting income and utility taxes. Bing warned in November 2011 that Detroit faced a projected cash shortfall of about $US150 million by the end of March 2012.
– On Dec. 2, 2011, Michigan launched a preliminary review of Detroit’s finances, citing the looming cash crunch. It found the city had a mounting debt problem with long-term liabilities estimated to top $US12 billion compared with an annual budget of about $US3.1 billion.
– Moody’s downgraded Detroit’s credit ratings deeper into “junk” on March 20, 2012, triggering the costly termination of interest rate swap agreements.
– In March 2012, about half of Detroit’s unions accepted pay cuts and other concessions to save the city $US68 million annually. In July, Bing imposed 10 per cent pay cuts on workers.
– In December 2012, state officials, concerned about the slow pace of reforms, launched a preliminary review ofDetroit’s finances. The review team concluded Detroit had a serious financial problem, triggering a deeper probe that led to the appointment of an emergency financial manager.
– An audit released on Jan. 3, 2013, showed Detroit’s cumulative deficit jumped to $US326.6 million at the end of fiscal2012 on June 30, from $US196.6 million in fiscal 2011.
– On Feb. 19, 2013 the review team concluded that Detroit faced a fiscal emergency. The report said the city was plagued by “operational dysfunction” and that it continued to deplete cash reserves and faced a cash deficit of $US100 million by June 30 without significant spending cuts.
– On March 1 2013, Snyder cleared the way for a state takeover ofDetroit’s finances by accepting the team’sfiscalemergency determination. He also said he had a top candidate for the job of emergency financial manager.
– On March 14, 2013, Snyder appointed bankruptcy and restructuring lawyer Kevyn Orr as Detroit’s emergency financial manager. Orr said he hoped the city would emerge from bankruptcy before his term expired in October 2014.
– In June 2013, Orr unveiled a proposal that called for minimal recoveries to unsecured creditors, including the city’s two pension funds and certain bondholders. Detroit also defaulted on $US1.4 billion of pension debt.
– Detroit filed the biggest-ever Chapter 9 municipal bankruptcy on July 18, 2013.
– Detroit defaulted on more than $US600 million of general obligation bonds in October 2013.
– Detroit was formally declared bankrupt in December 2013, a landmark ruling by U.S. Judge Steven Rhodes, who cited the city’s dismal finances and $US18 billion debt. About 40 per cent of the city’s streetlights did not work and about 78,000 abandoned buildings littered the city.
– On April 11, 2014, Rhodes approved a key settlement betweenDetroitand two investment banks over costly interest-rate swaps.
– Detroit reached deals with retirees and pension funds aided by $US816 million pledged by foundations, the Detroit Institute of Arts and the state of Michigan.
– An overwhelming majority of Detroit retirees and workers voted in favour of the city’s debt adjustment plan, according to results announced on July 22.
– Detroit reaches settlements in April and July 2014 with holders and insurers of its general obligation bonds that call for recoveries of 74 per cent for unlimited tax GOs and 34 per cent for limited-tax GOs.
– In September and October 2014, two holdout creditors – Syncora and FGIC – settled, shortening and easing a confirmation hearing on the plan that began on Sept. 2 and ended on Oct. 27.
– On Nov. 7, 2014, Judge Rhodes ruled that Detroit’s plan to shed $US7 billion of its debt and obligations and plow $US1.7 billion into improvements is both fair and feasible.
– Dec. 10, 2014: Detroit and Michigan officials hold news conference announcing city’s official exit from bankruptcy. “We’re going to start fresh tomorrow and do the best we can to deliver the kind of services people deserve,” said Mayor Mike Duggan.
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