"The main purpose of the bankruptcy -- to stop the bleeding and the further deterioration of the city -- has effectively been achieved," Jones Day partner David Heiman said. "We've done what we came here to do."
CLEVELAND, Ohio -- A federal bankruptcy judge in Michigan has approved an ambitious plan outlining how the City of Detroit can climb out of and move beyond its mammoth $18 billion in debts, the largest municipal bankruptcy case in U.S. history.
The bench ruling issued late Friday marks a major milestone for the city -- and for the Jones Day attorneys from Cleveland who led Detroit's restructuring and emergence from chapter 9 bankruptcy.
Judge Steven W. Rhodes of the U.S. Bankruptcy Court for the Eastern District of Michigan is expected to issue a written ruling within the next few days, on a case resolved an unprecedented 16 months after the city filed its chapter 9 petition.
View full sizeJones Day Partner David Heiman led the team that led the City of Detroit through its bankruptcy. "The main purpose of the bankruptcy -- to stop the bleeding and the further deterioration of the city -- has effectively been achieved," said David Heiman, the Cleveland business restructuring and reorganization partner that led Jones Day's team, along with Bruce Bennett of Los Angeles and Heather Lennox of Cleveland and New York. "The judge approved our plan of adjustment, which is essentially a contract between the city and its creditors, who for the most part have agreed to settle."
"We've done what we came here to do," he added.
After 20 months spent unraveling and reversing what 50 years of mismanagement and corruption had wrought on the City of Detroit, Heiman said he is highly confident that Detroit will begin its road to recovery before the end of the year. "Detroit has a great future ahead of it," he said.
A roadmap for recovery
The multifaceted plan for Detroit's recovery will:
-- Pare the city's $18 billion debt burden by about $7 billion, restoring the city's financial solvency.
-- Invest $1.7 billion over the next decade into revitalization projects to eliminate blight and strengthen the city's infrastructure.
View full sizeJones Day partner Tom Wilson was the third major Cleveland partner in Detroit's bankruptcy Detroit will now have the money to fix up blighted properties, from tearing down houses that are uninhabitable to clearing away lots covered in brush and debris, Heiman said. "Cleveland is in such better shape than Detroit," he said. Where Cleveland has about 30,000 or 40,000 blighted residential properties, Detroit has about 144,000.
-- Enhance public safety by investing in the city's police, fire and EMS departments.
-- Improve the city's transportation system.
-- Update the city's outdated information technology systems.
-- Streamline how the city's departments operate.
After months of mediation and negotiations with retiree representatives, bond insurers, labor unions and other creditor representatives, the city's plan will enable its pensioners to keep 95.5 percent to 100 percent of their current monthly pensions, as well as improve the solvency of the city's retirement systems.
Jones Day helped Detroit negotiate five-year collective bargaining agreements with all of its major unions and create a hybrid pension plan for all future city employees.
"We have been able to settle with all of [Detroit's] creditors, and $18 billion dollars of debt has been reduced by $7 billion," Heiman said.
The Grand Bargain
View full sizeJones Day partner Heather Lennox was one of the three key leaders in Detroit's bankruptcy plan.How did Detroit resolve its pension and retiree health issues? With an unprecedented agreement known colloquially as the "Grand Bargain": The State of Michigan, some philanthropic organizations, and the Detroit Institute of Arts -- organizations that had no obligations to the city -- collectively contributed $816 million to resolve the underfunded city pensions and settle with its claimants.
Their generosity also protected the world-class art collection at the DIA from being scattered, instead putting it in a perpetual charitable trust to ensure that residents and visitors would always be able to enjoy it.
"People who had no ties to Detroit contributed millions of their own dollars to support Detroit's pensions and craft a deal to preserve its art collection. For all of that to converge in one settlement, that is completely unheard of in bankruptcy chapter 9," said Heather Lennox, a John Carroll University graduate and a Jones Day partner who works out of the Cleveland and New York offices. Tom Wilson, another Cleveland-based partner, also played a key role on the team.
Lennox said that unlike other cases where certain parties are untouched, "Detroit is in such financial distress that we didn't let anyone get off without sacrificing something" toward settling the debts. "We just treated everybody the way they're supposed to be treated under bankruptcy law," she said. "This is the first time it's been done in bankruptcy."
An excellent prognosis
Going forward, an independent Financial Review Commission will review the City of Detroit's performance to ensure that it is complying with the plan, using sound budgets, developing realistic financial plans, and managing its expenses to meet all of its financial obligations.
If Detroit were a patient, its prognosis would be excellent, Heiman said. "We have a 10-year projection that shows the city will have a surplus rather than a deficit. Now Detroit is on solid financial ground, although it still has a lot of work to do."
"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," he said.