As Orr's strategy plays out, this landmark bankruptcy case could set legal precedents with repercussions for other municipalities. As just one example: Orr's plan, filed in federal court last Friday, could open the door to the first use of a so-called cramdown of settlement terms in a major municipal bankruptcy. If court-mandated mediation sessions fail to produce results over the next several weeks, Orr is reserving the right to force uncooperative counterparties to accept his terms.
Orr's plan presents city workers and retirees with a stark choice. Cuts to pension checks would only total about 4 percent for police and fire retirees and 26 percent for other retirees if there is a "timely settlement." If not, those cuts could balloon to 10 percent and 34 percent, respectively, or even more, depending on what measures are needed to keep the city's two retirement systems funded at a minimum of 80 percent of their obligations.
"To the pensions they are dangling a carrot and a stick, where they are offering less of a reduction if they can get a negotiated settlement," said
In a conference call with reporters on Friday, Orr said he anticipates reaching a settlement with the funds.
"I would think a reasonable person would sit down and say 'Boy, you know, a bird in the hand is worth whatever's in the bush. Let's get this done,'" Orr said.
"It remains to be seen if the pensioners are willing to give up
Besides, Bartell noted, the loss of the pledged money would force
As Orr negotiates over his plan, he is facing divisions even within the ranks of certain groups. Individual city creditors may want to settle, but the pension funds and unions that are negotiating with the city on their behalf may oppose a settlement over fears that
"The cops in
Orr's plan calls for a
Legal experts said it could be vulnerable on that second test because retirees have been offered something bondholders have not: the
The money was pledged by philanthropic foundations, the
The state and foundation money would make it possible for Orr to impose relatively smaller cuts on retirees while demanding the investors in unsecured bonds take an 80 percent loss on their investment. The unprecedented disparity between classes seems certain to raise fairness questions in the June trial, lawyers said.
"Why do the pensioners get so much more? Not unfairly discriminate does not mean not discriminate at all, but this is really where the
Should Rhodes rule that pensions can be paid more than bondholders, it would rattle the
"We have no doubt that there will be at least one impaired accepting class. We expect there will be many,"
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