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Was Detroit’s Chapter 9 Filing Proper?
This week the Judge rules on whether the City’s filing for Chapter 9 was proper. I believe he will rule favorably to the EM and allow the bankruptcy. My guess is this will ignite a flurry of legal activity. I fully expect the creditors to file pleadings alerting the Judge to issues impacting their claims and settlement. Appeals will be filed to protest however the Judge rules on the Chapter 9 eligibility. I fully expect the EM will file a reorganization plan within days of the ruling to keep up the momentum to get Detroit out of bankruptcy quickly. My guess is as result of the long-term nature of many of the creditors’ claims (especially for pensions and health care), the creditors are not interested in moving too quickly without exhausting all legal, financial, social and political ramifications associated with their claims. It will be interesting to see how important speed is. I personally don’t think these claims can be satisfied quickly with all the issues. The question will be whether the City will be hurt by slowing the process down. I am betting because of all the legal complexities, Detroit does not emerge this year from Chapter 9 and Governor Snyder extends Kevin Orr’s appointment as EM until the job is finished. I will state this is not the popular view, but it is important that the restructure gets done right not necessarily fast. Another alternative could be the Chapter 9 was proper, but the EM appointment was not. This would open the door for the new Mayor to become more prominent in the restructure process. If I were Mr. Duggan, I would let the EM finish the balance sheet restructure and figure out how to deal with the education, public safety, and infrastructure issues necessary to sustain Detroit’s renaissance. That in my opinion will be more than a full-time job.