DETROIT (WWJ) It’s a well-known fact if Detroit fails to figure out a plan for financial solvency, the city could become the largest municipal bankruptcy case in history.
But there’s another way the city could hit the financial record books, according to political consultant Steve Hood. He said emergency manager Kevyn Orr, tasked with trying to lower the city’s debt as he slashes budgets, works with unions, and make sense of Detroit’s disjointed financial records, could cut the biggest bond restructuring deal of all time.
“He’s either going to make inroads or he’s going to provide such a formidable stick (forcing bondholders to restructure) that he’ll be the most hated man in the bond industry,” Hood said.
Hood predicts Orr is going “get the job done” and make history by holding bond companies up until he gets the payments he wants — to avoid bankruptcy.
But Hood also predicted many City Hall watchers will be so caught up in watching the political wrangling behind the scenes — with city leaders fighting off state-ordered financial oversight — that they won’t notice when Orr gets history-making concessions from bond holders.
“We’re going to miss it because we’re so busy fighting this emergency manager,” Hood said.
Orr gave himself a six-week deadline to get a clear picture of Detroit’s finances and figure out if he can get the city out of the red without bankruptcy.
A plan to avoid bankruptcy would have to require getting bondholders to agree to debt restructuring. The city has a reported $15 billion in debt, and payments on the $2.9 billion of just general fund debt accounts for about 19 percent of the city’s general fund budget, Orr reported to the state, according to the Huffington Post.
The city only has enough cash to make those payments until December. So, will Orr cut a history-making deal to keep the city of bankruptcy?
Kevin Brown, spokesman for bond insurer MBIA, which insures $2.5 billion of Detroit’s debt, is mum. “We appreciate the opportunity, but we don’t have a comment on this,” he wrote in an email to CBS Detroit.