By Matthew Dolan
DETROIT--The city's emergency manager said in federal court
Thursday that he is hoping to usher Detroit out of municipal
bankruptcy by mid-October.
The Oct. 15 target date would fall after the expected end of the
term of Kevyn Orr, who was appointed as the city's emergency
manager in March 2013 through September of this year. It is
possible that Republican Michigan Gov. Rick Snyder could extend Mr.
Orr's 18-month term. Another state-appointed emergency manager
could also replace Mr. Orr even if he is voted out by the Detroit
City Council this fall.
In interviews, Mr. Orr has said that he doesn't plan to stay in
Detroit beyond the end of his term in September. The former
corporate bankruptcy attorney has been commuting from Detroit to
his home in suburban Washington since his appointment as the city's
receiver.
The target date came to light during Mr. Orr's testimony in
support of an $85 million settlement with two banks owed about $270
million in pension-related debt. The city has argued that the
settlement allows Detroit avoid costly litigation and secure
continued access to the city's casino tax revenue, estimated at
about $170 million a year.
But some creditors have raised questions about whether the
proposed settlement is the best deal for the city and could
unfairly leave insurers liable to pay banks for not being able to
recover the full amount owed.
At issue is whether the city under Mr. Orr should have tried to
break the so-called swaps agreements and recover the hundreds of
millions of dollars the city has paid the bank over about the last
decade. Federal bankruptcy judge Steven Rhodes in January indicated
the city may have a good chance to challenge the legality of
interest-rate bets that may have helped speed the city's fall into
insolvency.
In testimony Thursday, Mr. Orr said he was on the verge of suing
Bank of America Corp. and UBS AG in a multi-count complaint
alleging fraud among other claims after the judge rejected an
initial settlement in January. But the emergency manager said the
banks eventually agreed to talk about a lower payout, leading to
the proposed settlement that Mr. Orr described as a "steep
discount."
The banks, he said, would have been unwilling to simply walk
away from the debt owed and the cost of litigation for the city
could have been more than $1 million a month. "I needed to get a
resolution of this issue," Mr. Orr said.
The proposed settlement at issue with the federal bankruptcy
court in Detroit is the third time the parties have attempted to
persuade Judge Rhodes to allow the city to resolve the
pension-related debt. Judge Rhodes rejected a previous deal in
January, calling it too favorable to the banks.
It was unclear on Thursday how quickly Judge Rhodes intends to
rule on the proposed settlement. He ordered the city to provide
background documents to some of the creditors in the case, a
process that could take several weeks.
The city is eager to resolve the issue before a scheduled trial
on its debt-cutting plan to restructure about $18 billion in
long-term obligations scheduled to start in July.
Write to Matthew Dolan at matthew.dolan@wsj.com