United States: Bankruptcy Court Confirms City Of Detroit’s Chapter 9 Plan Of Adjustment

Jones Day Counsels City of Detroit Throughout Historic Municipal Bankruptcy Case

The Honorable Steven W. Rhodes of the United States Bankruptcy Court for the Eastern District of Michigan issued a bench ruling on November 7, 2014 (available at http://www.mieb.uscourts.gov/sites/default/files/notices/
), confirming the chapter 9 plan of adjustment for the City of Detroit (the "City") and paving the way for the City's exit from the largest and most complex municipal bankruptcy case in U.S. history. Both the City's achievement— the adjustment of approximately $18 billion in debt—and the speed with which the case was resolved—16 months after the City filed its chapter 9 petition— are unprecedented. The ruling follows a 24-day confirmation hearing and many months of out-of-court mediation and negotiations with retiree representatives, bond insurers, labor unions, and other creditor representatives. Jones Day has acted as lead restructuring counsel for the City of Detroit throughout these negotiations and the City's chapter 9 case.

Explained David Heiman, leader of the Jones Day team:

We are privileged to have been able to play a central role in this historic matter—the rebirth of Detroit, truly a great American city. We congratulate the many people who made this extraordinary result possible, including Governor Rick Snyder; Kevyn Orr; the mediation team led by U.S. district court chief judge Gerald Rosen; U.S. bankruptcy judge Steven Rhodes; the county executives and boards of Macomb, Oakland, and Wayne Counties; the mayor and city council of Detroit; and the numerous stakeholder parties that participated in this epic restructuring. Detroit has a great future ahead of it.

The confirmed plan reduces the City's estimated $18 billion debt burden by approximately $7 billion, restoring the City's financial solvency. Equally important, the plan establishes the framework for the reinvestment of approximately $1.7 billion over 10 years in a wide array of revitalization projects that will improve the everyday lives of the City's residents. These improvements include the following:

  • Sweeping blight remediation initiatives;
  • Renewed focus on public safety, with significant investment in the City's police, fire, and EMS departments;
  • Comprehensive improvements to the City's public transportation system;
  • An overhaul of the City's outdated and obsolete information technology systems; and
  • Streamlining of the operations of all City departments.

One of the most important aspects of the plan is the global settlement of issues related to the City's pensions and retiree health care. As a result of months of mediation and negotiation between the City, the official committee of retirees appointed by the bankruptcy court, the City's pension systems, and major unions and retiree associations, the plan enables the City's pensioners to retain between 95.5 and 100 percent of their current monthly pension allowance and increases the solvency of the City's retirement systems. This settlement also provides for the establishment of voluntary employee beneficiary associations (VEBAs) to assume the responsibility for providing health-care benefits to current City retirees.

This comprehensive resolution of the City's pension and retiree health issues would not have been possible without another settlement—popularly known as the "Grand Bargain"—pursuant to which:

  • The State of Michigan, certain philanthropic organizations, and the Detroit Institute of Arts ("DIA") committed a total of $816 million to address the underfunding of the City's pensions; and
  • The world-class art collection housed at the DIA was protected from dismemberment and placed in a perpetual charitable trust for the benefit of the City's residents and the surrounding region.

This "Grand Bargain" is unprecedented—parties with no existing obligation to the City have committed nearly $1 billion to the City's restructuring efforts and have preserved a critical cultural asset.

The bankruptcy court also approved other key settlements and agreements that promise continuing revitalization of the City, including the following:

  • An agreement with Financial Guaranty Insurance Company ("FGIC"), an insurer of more than $1 billion of the City's debt, to redevelop the site of the Joe Louis Arena ("JLA") following the relocation of the Red Wings to their new arena, pursuant to which FGIC would fund the costs of future construction upon the JLA site.
  • A similar agreement to enter into certain redevelopment transactions with Syncora, an active litigant in the chapter 9 case that holds or insures more than $350 million of debt. These redevelopment transactions include: (i) an extension of Syncora's existing lease of the Detroit-Windsor Tunnel; (ii) options to develop certain City properties; (iii) a concession for Syncora to operate Detroit's Grand Circus Parking Garage; and (iv) Syncora's commitment to make substantial capital improvements to and investments in the City and its assets.
  • Settlements with certain insurers and bondholders of general obligation bonds issued by the City. These settlements resolve significant disputes regarding the priority status of general obligation bond claims under Michigan law while allowing the City to retain millions of dollars in certain existing tax revenues.
  • The City's landmark agreement with Wayne County, Oakland County, Macomb County, and the State of Michigan to create a regional water and sewer authority.

None of the foregoing would have been possible without the commitment and indefatigable effort of the outstanding mediation team appointed by the bankruptcy court.

Other notable accomplishments and precedents in the City of Detroit's chapter 9 bankruptcy case include the following:

  • The tender of approximately $1.47 billion of Detroit Water and Sewerage Department ("DWSD") bonds, the first successful tender transaction in a chapter 9 bankruptcy case. The DWSD tender and related settlement with holders of DWSD bond claims will result in approximately $130 million in savings to DWSD.
  • A settlement between the City and secured creditors arising from certain interest-rate swap contracts, resulting in a 70 percent reduction of the City's obligations and savings of nearly $200 million.
  • Negotiation of new five-year collective bargaining agreements with all major City unions.
  • Adoption of a new hybrid pension plan for employees going forward.

Crucially, the City's achievements under the plan will be preserved by an independent Financial Review Commission to be formed under recently enacted state legislation; the commission will review the City's performance to ensure that the City complies with the plan, uses sound budgets, develops realistic financial plans, and manages its expenses to meet all of its financial obligations going forward.

Jones Day was retained in March 2013 as lead counsel to the City of Detroit in connection with its ongoing restructuring efforts and has counseled and served the City throughout its chapter 9 case. Jones Day: (a) assisted in the development and implementation of restructuring proposals, including the chapter 9 plan of adjustment; (b) participated in negotiations with the City's key stakeholder constituencies (including approximately 150 mediations), with the goal of reaching a consensual restructuring; and (c) handled all aspects of the chapter 9 case. The wide-ranging nature of the City's restructuring required Jones Day to perform an equally wide array of legal services, including litigation in multiple venues; the documentation and closing of a multitude of transactions, including the Grand Bargain and redevelopment transactions discussed above; capital-raising transactions; labor negotiations; and the structuring of pension and health-care benefits, among others.

The Jones Day team was led by Business Restructuring & Reorganization partners David Heiman (Cleveland), Bruce Bennett (Los Angeles), and Heather Lennox (Cleveland and New York). The team included the following:

Banking & Finance: Joel Telpner (New York); Business Restructuring & Reorganization: Corinne Ball (New York), Jeff Ellman (Atlanta), Brad Erens (Chicago), and Tom Wilson (Cleveland); Employee Benefits & Executive Compensation: Evan Miller (Washington), Sarah Griffin (Los Angeles), and Elena Kaplan (Atlanta); Labor & Employment: Brian Easley (Chicago), Jessica Kastin (New York), and Mike Rossman (Columbus); Litigation in Washington: Tim Cullen (Practice Leader, Global Disputes), Beth Heifetz (Practice Leader, Issues & Appeals), Geoff Irwin (Business & Tort Litigation (USA)), Greg Shumaker (Business & Tort Litigation (USA)), and Geoff Stewart (Global Disputes); and Real Estate: Brian Sedlak (Chicago).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.