As expected, a plan of adjustment was filed in the Detroit bankruptcy case awaiting approval by Judge Steven Rhodes. The plan, which suggests a 80% haircut for creditors and 50% for pensioners, is expected to be the subject of intense and bitter negotiations, with creditors claiming that the city's pension system is not in as bad shape as emergency manager Kevin Orr has portrayed, and that more cuts to the city's budget should be made. In fact, the city recently filed a lawsuit against unsecured creditors to void a $1.4 billion vehicle that was used to fund the pension plan rather than pay it off in settlement.
The New York Times suggested that the filing of the plan of adjustment was the start of the Kabuki theater of bargaining, politics and posturing. Judge Rhodes can force the plan on all groups if just one of them approves. Meanwhile, the question of whether restricting pension rights, which in addition to the haircut includes elimination of cost of living adjustments, is in violation of the state constitution, which specifically protects state workers. And how will the city function in the future as many question their ability to generate revenue to attract new creditors?
