In 2009, as the Obama administration pressed through its version of the auto bailout, creditors of companies like General Motors were squeezed into accepting repayments of just pennies on the dollar. The deal was supposed to save Detroit. Instead, creditors of the city of Detroit itself will now be handed pennies on the dollar.
City emergency manager Kevyn Orr, a bankruptcy lawyer appointed in March, told bondholders, insurers and union leaders that they would have to take less than the money they are owed if the city is to survive. “Detroit’s road to recovery begins today,” Orr said, proposing that unsecured bonds and some unfunded pension liabilities receive less than a dime on the dollar, since the city owes such creditors an outstanding $11 billion.
According to Orr’s May report, the city owes some $17 billion in long-term obligations. City liabilities include $9.4 billion in bonds and other borrowing. That’s not counting unfunded pension liabilities. If creditors refuse to accept this deal, the city will reportedly go bankrupt.