On July 18, the City of Detroit filed for protection under chapter 9 of the Bankruptcy Code, making Detroit the largest municipality to file for chapter 9 relief in United States history. Detroit is seeking to restructure approximately $18 billion in accrued obligations, consisting of approximately $11.9 billion in unsecured obligations and $6.4 billion in secured obligations. Prior to the bankruptcy filing, the City offered to pay unsecured creditors a pro rata distribution of $2 billion in principal amount of interest-only, limited recourse participation notes.
Detroit filed several significant motions in its first days in bankruptcy. They included:
- A memorandum in support of the City's qualifications to file for bankruptcy. Creditors will likely challenge the City's eligibility to file in the early stages of the case.
- A motion to assume a forbearance and settlement agreement between the City and two swap counterparties. The counterparties agreed to take a reduction in their claims, while permitting the City to access certain gaming proceeds.
- A motion to extend the chapter 9 automatic stays. This would limit parties' ability to litigate matters against the City outside the Bankruptcy Court. On July 18, Ingham County Circuit Judge Rosemarie Aquilina issued a temporary restraining order providing that the Governor must "(1) direct the Emergency Manager to immediately withdraw the Chapter 9 petition filed on July 18, and (2) not authorize any further Chapter 9 filing which threatens to diminish or impair accrued pension benefits."
Bankruptcy Judge Steven W. Rhodes has scheduled a "first day" hearing on these and other matters for July 23. We will continue to update developments in the Detroit Chapter 9 case.