Closed-door negotiations in Detroit's bankruptcy have intensified this week as the city and its numerous creditors try to strike a deal to restructure $18 billion in debt. City and creditor attorneys have been meeting in New York City since Monday trying to reach a consensual debt-cutting deal by week's end before the spotlight turns to Detroit's North American International Auto Show, which starts Monday, sources close to the negotiations told The Detroit News . While court-appointed mediators are pushing the opposing parties to reach a consensual deal, legal experts say arbitrary deadlines are bound to be broken in the free-wheeling process of a municipal bankruptcy bogged down by the competing interests of retirees, bondholders, banks, insurers and supporters of the Detroit Institute of Arts . "There's no doubt that people would like to get the plan (of adjustment) moving, but it's not going to be settled that fast," said Bill Brandt , a government restructuring consultant in Chicagonot involved in the case. "There's a lot of fight left to be had on this." Orr first faced setbacks in his fast-paced timeline last month, when U.S. Bankruptcy Judge Steven Rhodes questioned a deal to let two banks cut in front of other creditors in the repayment line. The banks recently agreed to settle a pension-related debt for $165 million , $65 million less than their previous deal. Now, the issuers of $6 billion in water and sewer bonds, which were believed to be the safest Detroit debt to own, are reportedly pushing back against Orr's plans to spin off the Detroit Water and Sewerage Department and make it a metropolitan authority. Such a plan could allow the water department to refinance billions in bonds, but the holders of that debt are not willing to accept lower interest rates, said Matt Fabian , managing director of Municipal Market Advisors , a Concord, Mass. -based bond market research service. "I would think 'some' pushback is wildly understating the pushback," Fabian said. "In talking to these guys, there is absolutely no interest in settling anything. ... Their resistance could be formidable if the city is insistent on reducing their full recovery." The mounting bondholder opposition comes as Orr's proposal to squeeze $9 billion in lease payments out of the water department's facilities over 40 years has not sat well with suburban leaders, who say he's asking too much from their customers. Orr spokesman Bill Nowling acknowledged the hurdles the city's legal team faces in mediation sessions. "The bondholders are going to fight hard to make sure that they maintain their rights and they don't lose anything in this," Nowling said. "You've got three-dimensional chess going on. They've made it pretty clear they're going to fight any efforts that would make them take less." Adding to the complexity of unraveling Detroit's debts are bond insurers who stand to take substantial losses on millions in general obligation bonds they guaranteed. Some water and sewer bondholders are "very fearful that the insurers will cut a deal" with the city to get a better return on general obligation bonds they also insured, Fabian said. Jefferson County, Ala. , recently settled its bankruptcy by paying sewer bondholders 80 cents on the dollar. "The bondholders are worried about a repeat of Jefferson County ," Fabian said. Chief U.S. District Judge Gerald Rosen , the lead mediator in Detroit's bankruptcy, ordered the mediation sessions at the Manhattan offices of the city's bankruptcy law firm, Jones Day . If a plan of adjustment is filed with the bankruptcy court by week's end, it will likely be modified before the judge considers approving it, said Laura Bartell , a bankruptcy professor at Wayne State University . "The first draft of a plan of adjustment is not the version that's going to be subject of a confirmation hearing," Bartell said. "He puts out a plan and everybody throws up all over it." Rhodes, who will have the final say over Detroit's debt-cutting plan, has stressed the importance of mediation to avoid protracted and costly litigation for city taxpayers. "Where there are consensual outcomes, there's no need to appeal," Brandt said.
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