City of Detroit Commences Chapter 9 Case to Pursue Its Restructuring and Revitalization Plan

Court-Supervised Process is Best and Most Efficient Way to Secure a Viable, Strong Detroit

Filing Enables City to Remain Focused on Restructuring and Begin Sorely Needed Reinvestment in Essential Services for Its 700,000 Residents

City Services to Continue Uninterrupted During Court-Supervised Restructuring and City Employees Will Continue to Receive Paychecks

Jul 18, 2013, 17:24 ET from City of Detroit

DETROIT, July 18, 2013 /PRNewswire/ -- Kevyn Orr, the Emergency Manager for the City of Detroit ("Detroit" or the "City"), today announced that Detroit has commenced a chapter 9 bankruptcy case in the United States Bankruptcy Court for the Eastern District of Michigan.  This step was authorized by the Governor Rick Snyder upon the recommendation of Mr. Orr, who concluded that "no reasonable alternative to rectifying the City's financial emergency exists other than confirmation of a plan of adjustment for the City's debts under chapter 9 of the United States Bankruptcy Code."

Restructuring Detroit through a court-supervised process is the best and most efficient way to secure a viable, strong future for Detroit.  Through the "automatic stay" provisions of the Bankruptcy Code, the chapter 9 filing provides a unique opportunity and a breathing spell during which the City can focus on restructuring and continue the process of sorely needed reinvestment.  It also allows the City to continue to pursue restructuring agreements with its vast and fragmented creditor groups and, if necessary, to bind non-consenting creditors to a debt adjustment plan.  Detroit will continue to pay its employees and maintain contracts with vendors that provide the City with essential goods and services.  The goal remains to resolve Detroit's dire and untenable financial situation and make the City a safe and attractive place in which to live, work, invest and do business.  While in chapter 9, the primary goals of the Emergency Manager remain to protect the health, safety and welfare of the City's residents and to find a long-term solution to Detroit's dire financial situation.

"My focus since Day One has been to do whatever it takes to improve the financial condition of Detroit and the lives of its 700,000 citizens," said Orr.  "We worked tirelessly and in good faith with our creditor groups to explore an out-of-court restructuring, but it has become clear that the City cannot rectify its financial emergency in a timely manner without the commencement of a chapter 9 case.  We will continue to work cooperatively with all Detroit's major creditor groups within the federal bankruptcy court process to maximize their recoveries consistent with legal priorities and our plan for revitalization.

"We can now focus on the restructuring and reinvestment process.  We will continue moving ahead with the speed, discipline and efficiency of a corporate restructuring.  Through this process, Detroit will finally be able to get its house in order and regain its place among America's great and vibrant cities.  This process may at times be difficult, but Detroit's residents should look forward to a brighter, more sustainable future."

The chapter 9 filing will not interfere with the City's delivery of essential services to its 700,000 residents.  Current vendor contracts for essential goods and services will be maintained, and the City expects to continue paying suppliers of goods and services provided during the bankruptcy period on a regular basis.  Additionally, City employees will not see any disruption of their paychecks, medical coverage and vacation allowances. 


On June 14, 2013, the Emergency Manager and his advisors presented a comprehensive restructuring proposal to the City's creditors.  Since then, Mr. Orr and his team have negotiated in good faith with all major creditors willing to engage in discussions through a series of meetings and exchanges of information.  Unfortunately, after more than a month of negotiations, it became clear that out-of-court agreements could not be reached in a timely manner, or at all, with certain groups of creditors, including certain retiree and bondholder groups.  In some cases, there was no way to feasibly organize or bind creditor groups outside of a court process.  In other cases, creditor representatives made clear that they could not, or would not, agree to the fundamental changes needed by the City to implement a sustainable restructuring.  Even where the City made progress in negotiating agreements with certain financial counterparties, disagreements erupted, and the City was forced to begin a lawsuit just to maintain access to its casino tax revenues. 

Under these circumstances, continuing the negotiation process out of court would be futile.  With cash dwindling, the City does not have the time or resources to wait longer to pursue its financial future through the chapter 9 process.

The reasons that Detroit is on the brink of financial and operational ruin are well documented, as are the many difficult issues that the City currently faces.  Detroit is insolvent.  Its debt and legacy liabilities – exceeding $18 billion – are unsustainable.  Servicing these obligations consumes a greater and greater percentage of the City's diminishing cash and prevents reinvestment in the City's services and infrastructure needed to protect its residents and provide an improved quality of life.  Even without fixing the City's core problems, the City simply does not have, and is not projected to have, the cash to meet its current and accrued obligations.  Nor does the City have the ability to access the capital markets or raise revenue through additional taxes.  The City cannot borrow its way out of this problem as it has tried to do in the past.

The restructuring proposal that the Emergency Manager and his team presented to creditors on June 14, 2013, is the best plan to resolve Detroit's financial problems and put the City on the path of fiscal sustainability for the future.  The Emergency Manager's proposal will:

  • Ensure delivery of essential services that are critical to the health, safety and welfare of residents, as well as to the City's quality of life and future stability and growth.
  • Devote resources for much-needed reinvestment in the City and its infrastructure.
  • Maximize recoveries for creditors consistent with their legal priorities and the City's financial wherewithal and overall restructuring needs.
  • Establish affordable pension and health insurance benefits for the City's 30,000 current and retired employees.

The City will continue to pursue these critical initiatives in chapter 9. 

Detroit's situation is unique and should not affect the credit-worthiness of other municipalities in Michigan or of the State itself.  A stabilized and financially sound Detroit can only benefit Detroit's surrounding communities and the State.

The June 14 proposal to creditors, which provides detail on the issues affecting Detroit and Mr. Orr's proposed solutions, remains available in the Emergency Manager section of Detroit's website at  This website also contains information and links relating to the chapter 9 case.  Bankruptcy Court filings are available online, free of charge, at  

Miller Buckfire & Co., Jones Day, Ernst & Young LLP and Conway MacKenzie Inc. are advising the City of Detroit on its restructuring.

SOURCE City of Detroit