By Matthew Dolan and Andrea Gallo
Leaders of Detroit pension funds expressed relief Tuesday after
voting results showed pension holders endorsed the Motor City's
historic reorganization plan, but bond insurers voiced continued
opposition, signaling a bumpy road ahead in bankruptcy court.
"Most of the retirees are looking forward to an income to have a
little certainty in their life. We're just glad it's over," said
Don Taylor, president of the Retired Detroit Police and
Firefighters Association.
General retirees, who comprise the bulk of those affected, would
have their pensions cut by 4.5% and would lose cost-of-living
increases. Retired police officers and firefighters would surrender
part of their annual cost-of-living increases.
But the approval drew criticism from bond insurers, who remain
opposed to the plan of reorganization.
"We understand why the retirees and unions voted in favor of the
city's plan--if we were offered a similar deal we too would approve
the plan," said bond insurer Financial Guarantee Insurance Co.
"Unfortunately, the city's current offer to FGIC and [certain]
bondholders in the plan is completely inferior, and until the city
treats us fairly, we are compelled to fight for the fair and
equitable treatment that is our right under the bankruptcy
code."
Contingent on the vote was an agreement by the state and private
donors to make $816 million available to shore up pensions. That
amount represents the present value of the city's world-class
Detroit Institute of Arts collection, which the city said would be
placed in a separate trust. The fundraising effort, dubbed the
"grand bargain" locally, is meant to allow the city to extract
value from the collection to pay down debt while keeping one of the
Motor City's cultural crown jewels intact and available to the
public.
"We are not surprised at the vote, given the grand bargain's
illegal diversion of highly valuable assets to the very creditors
who voted yes, " James Sprayregen, an attorney for bond insurer
Syncora Guarantee Inc., said in a statement Tuesday, according to
the Associated Press. "We look forward to...demonstrating to the
court that the plan cannot legally be confirmed given its unfair
discrimination against financial creditors and other serious
infirmities."
The vote, after weeks of tense campaigning, sets up a
confirmation trial scheduled for next month on the city's
restructuring plan, the final phase of the bankruptcy case.
Federal bankruptcy judge Steven Rhodes will have the final say,
and will hold a trial on whether the reorganization plan, which
also includes about $1.5 billion in reinvestment in services and
blight removal, is viable. The judge will also likely address the
criticism by some bond insurers that pension holders have been
treated too well compared with other creditors.
The official count, filed late Monday night, showed 82% of
voters eligible for a police or fire pension supported the plan.
Roughly 73% of other retirees and employees with pension benefits
who voted favored the plan. Voting ran from May to early July.
The pension holders' voting margins were seen as an endorsement
of the city's plan to confront an estimated $18 billion in
long-term obligations.
"The voting shows strong support for the city's plan to adjust
its debts and for the investment necessary to provide essential
services and put Detroit on secure financial footing," Detroit
Emergency Manager Kevyn Orr said.
On Monday, a court-appointed, independent financial expert found
the city would likely be able to provide basic municipal services,
meet revised obligations to creditors and avoid future default
under the plan's terms and using its assumptions.
"There's still a lot more work to be done. It isn't over until
the fat lady sings," said Tina Bassett, spokeswoman for Detroit's
General Retirement Pension System.
Write to Matthew Dolan at matthew.dolan@wsj.com