The largest municipal bankruptcy in U.S. history is ending. Federal Judge Steven Rhodes on Friday confirmed Detroit’s plan to emerge from Chapter 9 bankruptcy, allowing the city to erase a $7 billion mountain of unfunded debt and setting it on a course to try to revive its financial fortunes.
Judge Rhodes approved the historic plan to a hushed courtroom shortly after 1 p.m. ET. "The court confirms the plan," he told an audience that included city officials, creditors, and other onlookers.
The plan comes with sacrifices. Creditors took a buzz cut: general retirees agreed to a 4.5 percent cut in pensions and to forego cost-of-living increases; and two major bond insurers dropped their objections after the city offered them cash and real estate. The city, which has seen its population drop by more than half since 1950, could emerge from bankruptcy within weeks. Detroit is earmarking $1.4 billion over 10 years to improve services for its citizens. It will tear down scores of blighted buildings, upgrade basic services and increase public safety as a lure to attract people and businesses.
The case went through the courts faster than many had thought for something so massive and complex. It took only 16 months as the city’s financial officials, led by emergency manager Kevyn Orr, cut deals with major stakeholders including creditors, retirees, unions, bond insurers and banks. The proceedings could prove to be a blueprint for future Chapter 9 bankruptcies, which have tended to be long and winding roads. In the process, the deal saved the Detroit Institute of Arts, one of the city’s jewels, from having to sell off its collection, valued by Christie’s auction house at $867 million.