Three large holders of general obligation
bonds reached an agreement with the City of Detroit. Emergency Manager Kevyn
Orr said the development could provide major assistance in assuring some lower
income city pensioners do not fall into poverty. The settlement would pay the
bondholders, who together own $388 million in general obligation bonds, 74
cents on the dollar, for a total of $287.5 million. The payment is much higher
than the 20 cents on the dollar proposal laid out by Kevyn Orr at the beginning
of the year.
Bondholders will still see most of their
investment recouped thanks to bond insurance. The parties had been in
closed-door mediation since October, and mediators hope that this agreement
will encourage other debt holders to settle as well. Several weeks from now
city pensioners will consider a proposal by Mr. Orr that would cut non-law
enforcement pensions by 24% if a ‘Grand Bargain’ can be reached between the
state, foundations, and the Detroit Institute of Arts. If pensioners do not
agree with the proposal, the cut will amount to 34% if approved.
Of the $100 million the city will save due to
the settlement, $37 million will go toward making back payments on bonds. $57
million will be used to ensure that pension payments are at least 133% of the
federal poverty levels for individuals, a bit more than $15,000 per year, with
the remainder going toward city pension funds.