Original Story: freep.com
One of the region's last independent hospitals has filed for bankruptcy but plans to stay open.
The physician-owned Doctors Hospital of Michigan in Pontiac listed debts between $10 million and $50 million in its Chapter 11 petition filed this week in U.S. Bankruptcy Court in Detroit. A Detroit business bankruptcy attorney is reviewing the details of this case.
It is the second bankruptcy declaration in a decade for the struggling 105-year-old hospital, which was known as North Oakland Medical Centers during its last bankruptcy in 2008. Years earlier, it was called Pontiac General Hospital.
Hospital officials said Friday that their hospital is losing money and weighed down by debt that the business inherited as part of the hospital's 2008 sale to a private physicians' group. Flint-based McLaren Health Care system was a minority partner in that deal; McLaren's stake was bought out three years later by a group of 42 doctors.
The hospital's single off-site location, Waterford Ambulatory Care Center, closed earlier this month due to "cash-flow constraints" but could reopen in the future, said attorney Max Newman of Butzel Long, who is representing Doctors Hospital.
Doctors Hospital itself remains open and there are no plans to close, said hospital CEO John Ponczocha,
Hospital officials say they hope to reorganize the business's finances in bankruptcy so that it can potentially continue as an independent hospital. The hospital has about 200 full-time-equivalent employees.
"There's a number of potentials here," Newman said. "It could be purchased, it could merge with somebody. But at this point, the effort is going to be primarily to keep it running as a standalone entity."
The bankruptcy filing lists Wisconsin Physicians Service Insurance Co. as the hospital's largest creditor with about $6.4 million. Long said there are also significant loans from hospital insiders which are outstanding but not on the list. A Detroit hospital litigation attorney is following this story closely.
There are few independent hospitals left in southeast Michigan. Several formerly independent hospitals have been absorbed into larger systems, including Garden City Hospital (now a part of for-profit Prime Healthcare Services) and Mercy Memorial Hospital in Monroe (now part of the nonprofit ProMedica Health System).
Another independent hospital, Crittenton Hospital in Rochester, has a pending deal to join the St. Louis-based Ascension Health system.
Doctors Hospital of Michigan
• Original hospital dates to 1910
• Formerly known as North Oakland Medical Centers and Pontiac General Hospital
• Currently owned by a physicians group and is for-profit.
• Has about 200 full-time-equivalent employees
• Last filed for bankruptcy in 2008
Showing posts with label bankruptcy. Show all posts
Showing posts with label bankruptcy. Show all posts
05 January 2015
A NEW YEAR, NEW HOPE FOR LAWMAKERS
Original Story: freep.com
Resolutions are like flowers — pretty when they bloom on New Year's Eve, but often rather stale by the time any real reckoning for them comes around.
But they can also be useful divergences from the norm. A chance to dream, just for a bit, about things we might do better.
In Michigan, and southeast Michigan in particular, the list could be auspicious.
What if statewide, for instance, we committed to actually solving problems based on facts and merit, rather than indulging in hyperbolic ideology?
We're thinking specifically here about last year's legislative meltdown over roads, where the practical solution was obvious (more money for better maintenance along with tighter restrictions for the vehicles that do the most damage) but the agreed-upon abdication pushed all the decision-making to voters in a half-baked proposal. The anti-tax crowd cowed enough legislators to prevent the best, but politically difficult, ideas from winning the day.
It's instructive to compare the Legislature's handling of roads to the state's management of Detroit's financial crisis. After years of disinvestment and avoidance, the state actually stepped up to force tough decisions in its largest city. Billions in debt and liabilities were reorganized or chopped down, and a 60-year slide now seems poised to reverse.
Be it resolved that the Legislature take some cues from the handling of Detroit's financial woes in the way it addresses roads and a host of other issues like education and local government funding. Let's see how long the glow from that resolution lasts.
Locally, the best resolution can be summed up in two words: Don't blink.
Detroit's new financial lease on life is the opportunity of a generation, but there's much that needs doing to take full advantage — and that's not just for Detroiters. We can't afford to have key parties cower from the challenges that are now much more manageable, but still unfinished.
True, city government must deliver services better, primarily focused on blight removal and public safety. But it will still be somewhat cash-strapped, and the need for help from the outside — from quarters that have long sat on the sidelines as the city declined — could not be more acute.
Private interests who have held back investment in the city need to join companies like Quicken Loans, Blue Cross and General Motors, and jump into the revitalization of the city's Central Business District. State government, having helped the bankruptcy along with $200 million for the grand bargain, must commit to build on that investment with money for neighborhood revitalization and the building of real economic opportunity.
And Detroiters themselves must continue to insist that things can, and will, be better — by holding elected officials accountable and making strong choices at the ballot box.
Be it resolved that Detroit's potential turnaround becomes more real in 2015, by building on last year's historic momentum.
New year, new hope. Let's toast to it with fervor, but then get right back to work.
Resolutions are like flowers — pretty when they bloom on New Year's Eve, but often rather stale by the time any real reckoning for them comes around.
But they can also be useful divergences from the norm. A chance to dream, just for a bit, about things we might do better.
In Michigan, and southeast Michigan in particular, the list could be auspicious.
What if statewide, for instance, we committed to actually solving problems based on facts and merit, rather than indulging in hyperbolic ideology?
We're thinking specifically here about last year's legislative meltdown over roads, where the practical solution was obvious (more money for better maintenance along with tighter restrictions for the vehicles that do the most damage) but the agreed-upon abdication pushed all the decision-making to voters in a half-baked proposal. The anti-tax crowd cowed enough legislators to prevent the best, but politically difficult, ideas from winning the day.
It's instructive to compare the Legislature's handling of roads to the state's management of Detroit's financial crisis. After years of disinvestment and avoidance, the state actually stepped up to force tough decisions in its largest city. Billions in debt and liabilities were reorganized or chopped down, and a 60-year slide now seems poised to reverse.
Be it resolved that the Legislature take some cues from the handling of Detroit's financial woes in the way it addresses roads and a host of other issues like education and local government funding. Let's see how long the glow from that resolution lasts.
Locally, the best resolution can be summed up in two words: Don't blink.
Detroit's new financial lease on life is the opportunity of a generation, but there's much that needs doing to take full advantage — and that's not just for Detroiters. We can't afford to have key parties cower from the challenges that are now much more manageable, but still unfinished.
True, city government must deliver services better, primarily focused on blight removal and public safety. But it will still be somewhat cash-strapped, and the need for help from the outside — from quarters that have long sat on the sidelines as the city declined — could not be more acute.
Private interests who have held back investment in the city need to join companies like Quicken Loans, Blue Cross and General Motors, and jump into the revitalization of the city's Central Business District. State government, having helped the bankruptcy along with $200 million for the grand bargain, must commit to build on that investment with money for neighborhood revitalization and the building of real economic opportunity.
And Detroiters themselves must continue to insist that things can, and will, be better — by holding elected officials accountable and making strong choices at the ballot box.
Be it resolved that Detroit's potential turnaround becomes more real in 2015, by building on last year's historic momentum.
New year, new hope. Let's toast to it with fervor, but then get right back to work.
12 December 2014
SOURCE: FIRMS WILL CUT BANKRUPTCY FEES UNDER DEAL
Original Story: detroitnews.com
The city could have millions more to spend on services, now that firms that helped Detroit through its historic bankruptcy agreed Thursday to reduce their legal and consulting fees.
After more than a week of negotiations with federal mediators, the law firm Jones Day and the investment firm Miller Buckfire agreed to make “significant concessions” on fees, a source briefed on the talks told The Detroit News. Other firms that have billed the city for bankruptcy-related services also agreed to reduce their bills. It’s not yet clear how much each firm cut back. Detroit Lawyers have experience assisting clients in bankruptcy and restructuring cases.
The source said only that the overall money saved — about $25 million — would pay for a lot of police, firefighters and equipment for Detroit.
Details of the deals are expected to be made public Monday during a status conference before U.S. Bankruptcy Judge Steven Rhodes. The judge must approve the agreements.
The person briefed on the discussions told The News the amount of savings to the city may depend on how savings are defined. As one of Detroit's best law firms, Butzel Long attorneys have helped debtors, creditors, official and unofficial creditor and equity holder committees and acquirers.
Some of the companies, the source explained, cut fees, some gave back as “in kind” contributions and others agreed to not seek payment for future services from firms that Detroit will continue to use after the bankruptcy.
Mayor Mike Duggan has expressed concern escalating legal fees — which he said could climb to $177 million — would eat up money needed to revitalize the city.
Detroit Corporation Counsel Melvin “Butch” Hollowell said Thursday that the city is “pleased” with the mediation process, and thanked Chief U.S. District Judge Gerald Rosen and the federal mediation team.
“We will make no further comments until the status conference on Monday, or the court releases us from the mediation confidentiality,” Hollowell said.
Before the deals were reached, federal mediators held at least four formal sessions over the reasonableness of more than $140 million in fees billed to Detroit by its bankruptcy lawyers and restructuring consultants. The team held talks with about a dozen firms, while the city held earlier talks with about a dozen smaller firms to reach settlements.
The city’s lawyers and consultants pointed out during mediation they had already made significant concessions on fees.
By late October, Jones Day had charged Detroit $52.3 million.
Miller Buckfire renegotiated its contract with the city twice, most recently in June. In the newest contract, the firm was to receive a flat fee of $28 million for all of its services. Prior to revising its contract, the firm had already given the city a discounted rate, according to former Emergency Manager Kevyn Orr’s office.
The resolution comes one day after Detroit’s official exit from bankruptcy. Orr told The News on Wednesday that some administrative matters still need to be wrapped up, and that the legal fee mediation would not affect the exit date.
The mediation team, in a statement released Thursday, noted that representatives for the firms, Orr and Snyder — along with Duggan, City Council members and the city’s top attorney — “fully and vigorously” participated in the discussions.
“Their agreements reflect what the mediators hope will be their final work in the Detroit bankruptcy,” the statement reads. “As we have been from the inception of our work, the mediators are privileged and proud to have played a role not only in these agreements, but in all of the agreements that have led to the expeditious and successful resolution of the Detroit bankruptcy in which the city has been able to resolve its disputes with virtually all of its creditors and professional service providers on a consensual basis.” As one of Detroit's biggest law firms, Butzel Long has represented clients in every aspect of in-court and out-of-court restructurings.
On Wednesday, the mayor noted that the role of consultants in the city will be “dramatically reduced” as full-time employees are brought in to take over.
“All of the consultants are being phased out pretty quickly,” he said.
Orr, a former Jones Day attorney, told The News on Wednesday that the fees may seem high, but he said he didn’t believe they were out of line for a case of Detroit’s magnitude.
The bankruptcy allowed the city to shed $7 billion in debt and to restructure another $3 billion, he said.
“I’m sensitive to the fact that the fees are high. But everyone says this is a historical, outstanding result. Some mediators even called it miraculous,” Orr said. “You have to recognize there’s a cost to getting that kind of result in this time frame to deal with 50 years of issues.”
The city could have millions more to spend on services, now that firms that helped Detroit through its historic bankruptcy agreed Thursday to reduce their legal and consulting fees.
After more than a week of negotiations with federal mediators, the law firm Jones Day and the investment firm Miller Buckfire agreed to make “significant concessions” on fees, a source briefed on the talks told The Detroit News. Other firms that have billed the city for bankruptcy-related services also agreed to reduce their bills. It’s not yet clear how much each firm cut back. Detroit Lawyers have experience assisting clients in bankruptcy and restructuring cases.
The source said only that the overall money saved — about $25 million — would pay for a lot of police, firefighters and equipment for Detroit.
Details of the deals are expected to be made public Monday during a status conference before U.S. Bankruptcy Judge Steven Rhodes. The judge must approve the agreements.
The person briefed on the discussions told The News the amount of savings to the city may depend on how savings are defined. As one of Detroit's best law firms, Butzel Long attorneys have helped debtors, creditors, official and unofficial creditor and equity holder committees and acquirers.
Some of the companies, the source explained, cut fees, some gave back as “in kind” contributions and others agreed to not seek payment for future services from firms that Detroit will continue to use after the bankruptcy.
Mayor Mike Duggan has expressed concern escalating legal fees — which he said could climb to $177 million — would eat up money needed to revitalize the city.
Detroit Corporation Counsel Melvin “Butch” Hollowell said Thursday that the city is “pleased” with the mediation process, and thanked Chief U.S. District Judge Gerald Rosen and the federal mediation team.
“We will make no further comments until the status conference on Monday, or the court releases us from the mediation confidentiality,” Hollowell said.
Before the deals were reached, federal mediators held at least four formal sessions over the reasonableness of more than $140 million in fees billed to Detroit by its bankruptcy lawyers and restructuring consultants. The team held talks with about a dozen firms, while the city held earlier talks with about a dozen smaller firms to reach settlements.
The city’s lawyers and consultants pointed out during mediation they had already made significant concessions on fees.
By late October, Jones Day had charged Detroit $52.3 million.
Miller Buckfire renegotiated its contract with the city twice, most recently in June. In the newest contract, the firm was to receive a flat fee of $28 million for all of its services. Prior to revising its contract, the firm had already given the city a discounted rate, according to former Emergency Manager Kevyn Orr’s office.
The resolution comes one day after Detroit’s official exit from bankruptcy. Orr told The News on Wednesday that some administrative matters still need to be wrapped up, and that the legal fee mediation would not affect the exit date.
The mediation team, in a statement released Thursday, noted that representatives for the firms, Orr and Snyder — along with Duggan, City Council members and the city’s top attorney — “fully and vigorously” participated in the discussions.
“Their agreements reflect what the mediators hope will be their final work in the Detroit bankruptcy,” the statement reads. “As we have been from the inception of our work, the mediators are privileged and proud to have played a role not only in these agreements, but in all of the agreements that have led to the expeditious and successful resolution of the Detroit bankruptcy in which the city has been able to resolve its disputes with virtually all of its creditors and professional service providers on a consensual basis.” As one of Detroit's biggest law firms, Butzel Long has represented clients in every aspect of in-court and out-of-court restructurings.
On Wednesday, the mayor noted that the role of consultants in the city will be “dramatically reduced” as full-time employees are brought in to take over.
“All of the consultants are being phased out pretty quickly,” he said.
Orr, a former Jones Day attorney, told The News on Wednesday that the fees may seem high, but he said he didn’t believe they were out of line for a case of Detroit’s magnitude.
The bankruptcy allowed the city to shed $7 billion in debt and to restructure another $3 billion, he said.
“I’m sensitive to the fact that the fees are high. But everyone says this is a historical, outstanding result. Some mediators even called it miraculous,” Orr said. “You have to recognize there’s a cost to getting that kind of result in this time frame to deal with 50 years of issues.”
13 October 2014
WHEELCHAIR RAMPS MISS THE POINT AS AID FOR HANDICAPPED
Original Story: detroitnews.com
This summer, Detroit spent tens of thousands of dollars replacing sidewalk wheelchair ramps in little traveled areas.
The bankrupt city put in ramps, costing about $10,000 per intersection, along crumbling sidewalks along Warren near Conner. In one half-mile stretch, from St. Jean to Cadillac, there are 52 new sets of ramps.
Some face brick walls. Others provide access to an empty lot where Helen Joy Middle School stood until it was razed in 2009. On many corners, sidewalks end after the ramps.
"You drive down some of these streets and there are blocks of no houses, but pretty new curbs," said Sherman Hayes, 84, a retired nurse who lives nearby on Lakewood Street. "Look at all these ramps to nowhere. It makes my blood boil."
Detroit officials say they have no choice. The work is the latest in a decadelong, court-imposed effort to force Detroit into compliance with federal handicapped accessible laws.
An order from U.S. District Judge Gerald Rosen requires the city to build ramps on every road it resurfaces — and at every local intersection of major roads, said Ron Brundidge, director of the city's department of public works. In eight years, the city has spent $30 million to install 25,000 ramps. The work is far from over: City officials estimate they need to build another 50,000 ramps for $60 million to comply.
Few are happy.
Detroit is using gas taxes that otherwise could be spent on fixing streets to build ramps in often empty neighborhoods. Wheelchair users agree that building so-called ramps to nowhere is a waste of money — but point out there are still large areas of the city without working ramps.
Talks began for a compromise but ended when Detroit declared bankruptcy last year. Neither side can change the plan because the ongoing bankruptcy trial suspended litigation, but wheelchair advocates say they want to resume talks when the trial ends.
"We'd rather see the city's limited resources applied to areas with more foot traffic," said Michael Harris, executive director of Michigan Paralyzed Veterans of America, which sued to enforce federal law mandating the ramps.
"It makes absolutely no sense to build them in some of these areas."
Within the past year, new ramps were installed a few blocks south of Warren in front of a burned-out liquor store at Cadillac and Canfield. The sidewalk ends 10 feet after the ramp, which is overgrown with weeds. Over on Kercheval, ramps provide access to empty lots and burned out homes near Canton.
"Who would think it's OK to put up ramps where there are no houses?" Hayes asked. "In the wintertime, how are you going to use those ramps when there is no one who lives there to shovel?"
Meanwhile, better-traveled areas — even some near downtown — lack working ramps, making getting around "very, very difficult" for wheelchair users such as Inene Laverne, she said.
"They need to put in ramps where they are needed," said Laverne, 50, who lives near Midtown and has used a motorized wheelchair for eight years because of a bad back.
"Sometimes, you have to go into the street and they are raggedy. It messes up your suspension and you need to get your wheels replaced."
Before the work this year, there were ramps up and down East Warren. It was easy for wheelchair users to travel east and west, but getting to the other side of Warren required a few turns into traffic.
"Basically, they were put in the position of jaywalking," said J. Mark Finnegan, an attorney for the veterans group.
Now, every corner along the stretch has at least two new orange "tactile warning" curb ramps with raised bumps. One faces the cross street, the other faces Warren.
The ramps are the nicest part of the sidewalks on Warren. In several stretches, the sidewalks are broken and almost unpassable.
"There's a question of how much benefit the city receives for something that is underutilized," Brundidge said.
"We aren't disputing the need for sidewalks to be accessible for all, but someone could make an argument that it isn't the best use for taxpayer dollars when you look at the money spent and compare it to how much it is used."
The law requiring the ramps isn't new. The Americans with Disabilities Act took effect in 1991. Detroit signed an agreement with the U.S. Department of Justice in 2004 to build all the ramps by 2007. The veterans sued in 2006 when the city had made no progress, said Denise Heberle, an Ann Arbor-based attorney for the group.
"We hear it all the time: 'Poor bankrupt Detroit has to put up curb cuts it can't afford because of those paralyzed veterans,' " she said. "If Detroit had followed the law a long time ago, it wouldn't be in this position."
Finnegan said about 400 intersections downtown still lack working ramps. The city agreed to build ramps first in an area roughly from Grand River to Jefferson and the Lodge to Interstate 375. It built about 4,800 but has "absolutely refused" to complete the rest, Finnegan said.
On Gratiot, the ramps are so steep that wheelchair users have to go up them in reverse, Finnegan said. Otherwise, the wheelchairs will tip over, he said.
"We've been saying for years, 'fix these ramps and stop working in the middle of nowhere,' and they won't do it," Finnegan said.
Until recently, Woodward and Jefferson near the Coleman A. Young Municipal Center lacked working ramps because of a standoff over whether the city or state should build them. The city had contended it shouldn't be responsible for major roads that double as state routes.
"Every intersection is supposed to be accessible and it should have been done a long time ago," Finnegan said. "When the bankruptcy settles, we are going to be back on them again."
This summer, Detroit spent tens of thousands of dollars replacing sidewalk wheelchair ramps in little traveled areas.
The bankrupt city put in ramps, costing about $10,000 per intersection, along crumbling sidewalks along Warren near Conner. In one half-mile stretch, from St. Jean to Cadillac, there are 52 new sets of ramps.
Some face brick walls. Others provide access to an empty lot where Helen Joy Middle School stood until it was razed in 2009. On many corners, sidewalks end after the ramps.
"You drive down some of these streets and there are blocks of no houses, but pretty new curbs," said Sherman Hayes, 84, a retired nurse who lives nearby on Lakewood Street. "Look at all these ramps to nowhere. It makes my blood boil."
Detroit officials say they have no choice. The work is the latest in a decadelong, court-imposed effort to force Detroit into compliance with federal handicapped accessible laws.
An order from U.S. District Judge Gerald Rosen requires the city to build ramps on every road it resurfaces — and at every local intersection of major roads, said Ron Brundidge, director of the city's department of public works. In eight years, the city has spent $30 million to install 25,000 ramps. The work is far from over: City officials estimate they need to build another 50,000 ramps for $60 million to comply.
Few are happy.
Detroit is using gas taxes that otherwise could be spent on fixing streets to build ramps in often empty neighborhoods. Wheelchair users agree that building so-called ramps to nowhere is a waste of money — but point out there are still large areas of the city without working ramps.
Talks began for a compromise but ended when Detroit declared bankruptcy last year. Neither side can change the plan because the ongoing bankruptcy trial suspended litigation, but wheelchair advocates say they want to resume talks when the trial ends.
"We'd rather see the city's limited resources applied to areas with more foot traffic," said Michael Harris, executive director of Michigan Paralyzed Veterans of America, which sued to enforce federal law mandating the ramps.
"It makes absolutely no sense to build them in some of these areas."
Within the past year, new ramps were installed a few blocks south of Warren in front of a burned-out liquor store at Cadillac and Canfield. The sidewalk ends 10 feet after the ramp, which is overgrown with weeds. Over on Kercheval, ramps provide access to empty lots and burned out homes near Canton.
"Who would think it's OK to put up ramps where there are no houses?" Hayes asked. "In the wintertime, how are you going to use those ramps when there is no one who lives there to shovel?"
Meanwhile, better-traveled areas — even some near downtown — lack working ramps, making getting around "very, very difficult" for wheelchair users such as Inene Laverne, she said.
"They need to put in ramps where they are needed," said Laverne, 50, who lives near Midtown and has used a motorized wheelchair for eight years because of a bad back.
"Sometimes, you have to go into the street and they are raggedy. It messes up your suspension and you need to get your wheels replaced."
Before the work this year, there were ramps up and down East Warren. It was easy for wheelchair users to travel east and west, but getting to the other side of Warren required a few turns into traffic.
"Basically, they were put in the position of jaywalking," said J. Mark Finnegan, an attorney for the veterans group.
Now, every corner along the stretch has at least two new orange "tactile warning" curb ramps with raised bumps. One faces the cross street, the other faces Warren.
The ramps are the nicest part of the sidewalks on Warren. In several stretches, the sidewalks are broken and almost unpassable.
"There's a question of how much benefit the city receives for something that is underutilized," Brundidge said.
"We aren't disputing the need for sidewalks to be accessible for all, but someone could make an argument that it isn't the best use for taxpayer dollars when you look at the money spent and compare it to how much it is used."
The law requiring the ramps isn't new. The Americans with Disabilities Act took effect in 1991. Detroit signed an agreement with the U.S. Department of Justice in 2004 to build all the ramps by 2007. The veterans sued in 2006 when the city had made no progress, said Denise Heberle, an Ann Arbor-based attorney for the group.
"We hear it all the time: 'Poor bankrupt Detroit has to put up curb cuts it can't afford because of those paralyzed veterans,' " she said. "If Detroit had followed the law a long time ago, it wouldn't be in this position."
Finnegan said about 400 intersections downtown still lack working ramps. The city agreed to build ramps first in an area roughly from Grand River to Jefferson and the Lodge to Interstate 375. It built about 4,800 but has "absolutely refused" to complete the rest, Finnegan said.
On Gratiot, the ramps are so steep that wheelchair users have to go up them in reverse, Finnegan said. Otherwise, the wheelchairs will tip over, he said.
"We've been saying for years, 'fix these ramps and stop working in the middle of nowhere,' and they won't do it," Finnegan said.
Until recently, Woodward and Jefferson near the Coleman A. Young Municipal Center lacked working ramps because of a standoff over whether the city or state should build them. The city had contended it shouldn't be responsible for major roads that double as state routes.
"Every intersection is supposed to be accessible and it should have been done a long time ago," Finnegan said. "When the bankruptcy settles, we are going to be back on them again."
11 September 2014
DETROIT BANKRUPTCY BREAKTHROUGH: SYNCORA REACHES AGREEMENT WITH CITY ON DEBT
Original Story: Freep.com
The City of Detroit and creditor Syncora have reached an agreement, in principle, that would end the bond insurer’s vigorous opposition to the city’s restructuring and turn the company into an ally, reflecting a remarkable breakthrough in the city’s historic bankruptcy case.
The proposed deal — which came on the same day that Detroit and its suburbs struck a deal for a regional water authority — would leave bond insurer Financial Guaranty Insurance Co. (FGIC) and several hedge funds as the last remaining major creditors preventing an amicable resolution of the largest municipal bankruptcy in U.S. history. A Texas Litigation Lawyer is reviewing the details of this case.
Crucially, the deal is contingent on Syncora and the city convincing UBS and Bank of America to release the insurer from certain interest-rate liabilities that are connected to the $1.4-billion pension debt deal Syncora and FGIC insured.
“There is a tentative agreement between Syncora and the City that we believe is an acceptable resolution for all concerned,” Syncora said in a statement. “We have asked that the trial be delayed for 48 hours so that we can work through certain contingencies contained in the deal, including obtaining full resolution with Bank of America, UBS and other stakeholders. We are hopeful the deal will be finalized in the next 48 hours.”
While the breakthrough could delay the trial until Friday, it could ultimately shorten hearings currently scheduled to go into October.
“I think this is the happiest Kevyn Orr has been in some time,” said John Pottow, a professor at the University of Michigan Law School. “This is a big happy night.”
Syncora would get a total of about 26 cents on the dollar when all elements of the deal are included — up from no more than 10 cents under the city’s current proposal, two people familiar with the deal said Syncora is owed hundreds of millions of dollars.
Bankruptcy Judge Steven Rhodes must still approve the deal.
Pottow said he is surprised at how generous the terms of the agreement are, and predicts that Rhodes will take a close look at the agreement and will likely ask his financial expert to review it. A Boston Bankruptcy Lawyer is reviewing the details of this case.
“It sounds like a lot of money to me,” Pottow said. “If I am a feasibility expert, I will want to know how they found all of this extra money.”
A person familiar with the negotiations who spoke on condition of anonymity said terms of the deal would include giving Syncora control of a city parking garage near Grand Circus for 30 years. The deal also includes a 20-year lease extension of operation of the U.S. part of the Detroit-Windsor Tunnel. The insurer currently controls the U.S. side of the tunnel through a contract that expires in 2020.
Syncora owns the company, American Roads, that operates the tunnel on the city’s behalf. Windsor owns and operates the Canadian side of the tunnel. Proceeds from the lease are around $4 million to $5 million a year. The new lease would go through 2040.
Syncora also would receive $23.5 million in cash through so-called B-notes, bonds Detroit had already floated in the bankruptcy, the person said.
Despite the tentative deal, Bank of America and UBS stand in the way.
Syncora won’t agree to settle with Detroit unless the banks release the insurer from its responsibility to cover the banks’ losses on an $85-million deal brokered in the spring to eliminate a costly swaps deal reached by Kwame Kilpatrick’s administration to secure a steady interest rate on a $1.4-billion debt.
The banks were owed nearly $290 million on the swaps but agreed to take significantly less after Rhodes said the swaps were probably illegal.
If the banks don’t agree to end their legal fight against Syncora, Detroit may still face the insurer in court.
“Once again, the swap banks are standing in the way,” one person familiar with the deal said.
The news comes on the same day the city struck a tentative 40-year deal with Macomb, Oakland and Wayne counties to create a regional water authority that will provide $50 million annually to finance badly needed upgrades and help low-income residents avoid water shutoffs. The two deals represent major breakthroughs toward resolving the city’s $18-billion bankruptcy, the largest in U.S. history.
The city has already reached deals with unions and pensioners, leaving FGIC and the hedge funds as the last big creditor holdout in Detroit’s bankruptcy. There are hundreds of small and objectors and creditors.
Syncora would get a long-term lease on the city’s parking garage beneath Grand Circus Park, which could raise significant funds for the bond insurer, but it also must invest $13 million in upgrades. After it invests for repairs, Syncora would keep the proceeds from running the garage but would eventually give Detroit 25% of the profits. Syncora would also get parking bonds worth $21 million.
Syncora also would get $6.2 million in credits toward purchasing city property and buildings that might go up for sale in the coming years, including Joe Louis Arena. Syncora could use the credits to offset the sale price.
The settlements reflect a significant achievement for the largest municipal bankruptcy that was filed on July 18, 2013. Many thought it would take years to settle. A Baton Rouge Bankruptcy Lawyer represents businesses involved in a wide range of bankruptcy cases.
But several days into the city’s historic bankruptcy trial — after which Rhodes will have the power to approve the plan of adjustment — resolving the dispute with Syncora would be a major breakthrough.
The company has been the city’s most vociferous opponent, decrying Orr’s plan to favor retirees over financial creditors and transfer the Detroit Institute of Arts to an independent trust in exchange for outside funding to reduce pension cuts.
In August, Syncora drew Rhodes’ ire by accusing bankruptcy mediators Gerald Rosen and Eugene Driker of “naked favoritism” on behalf of pensioners. The judge is considering sanctions on Syncora’s attorneys. But a deal could help smooth over the differences.
John Roach, spokesman for Mayor Mike Duggan, said the mayor is declining to comment on the bankruptcy process, which is Orr’s responsibility. Orr’s office also refused to comment Tuesday.
Syncora and FGIC insured a $1.4-billion pension obligation certificates of participation deal brokered by Kilpatrick’s administration in 2005 to eliminate the city’s unfunded pension liabilities.A Tulsa Tax Lawyer is reviewing the details of this case.
Doug Bernstein, a bankruptcy attorney and partner with Plunkett Cooney who represents the outside foundations that helped fund the grand bargain to save the DIA and reduce pension cuts said Rhodes will still want to closely evaluate the bankruptcy plan and decide if it will solve the city’s financial issues after the city emerges from bankruptcy.
“The city still has to get past that feasibility hurdle,” Bernstein said. “The biggest remaining hurdle is feasibility.”
FGIC, as the last remaining major creditor objecting to the plan, will have a tougher time arguing against the plan on its own, Bernstein said.
The City of Detroit and creditor Syncora have reached an agreement, in principle, that would end the bond insurer’s vigorous opposition to the city’s restructuring and turn the company into an ally, reflecting a remarkable breakthrough in the city’s historic bankruptcy case.
The proposed deal — which came on the same day that Detroit and its suburbs struck a deal for a regional water authority — would leave bond insurer Financial Guaranty Insurance Co. (FGIC) and several hedge funds as the last remaining major creditors preventing an amicable resolution of the largest municipal bankruptcy in U.S. history. A Texas Litigation Lawyer is reviewing the details of this case.
Crucially, the deal is contingent on Syncora and the city convincing UBS and Bank of America to release the insurer from certain interest-rate liabilities that are connected to the $1.4-billion pension debt deal Syncora and FGIC insured.
“There is a tentative agreement between Syncora and the City that we believe is an acceptable resolution for all concerned,” Syncora said in a statement. “We have asked that the trial be delayed for 48 hours so that we can work through certain contingencies contained in the deal, including obtaining full resolution with Bank of America, UBS and other stakeholders. We are hopeful the deal will be finalized in the next 48 hours.”
While the breakthrough could delay the trial until Friday, it could ultimately shorten hearings currently scheduled to go into October.
“I think this is the happiest Kevyn Orr has been in some time,” said John Pottow, a professor at the University of Michigan Law School. “This is a big happy night.”
Syncora would get a total of about 26 cents on the dollar when all elements of the deal are included — up from no more than 10 cents under the city’s current proposal, two people familiar with the deal said Syncora is owed hundreds of millions of dollars.
Bankruptcy Judge Steven Rhodes must still approve the deal.
Pottow said he is surprised at how generous the terms of the agreement are, and predicts that Rhodes will take a close look at the agreement and will likely ask his financial expert to review it. A Boston Bankruptcy Lawyer is reviewing the details of this case.
“It sounds like a lot of money to me,” Pottow said. “If I am a feasibility expert, I will want to know how they found all of this extra money.”
A person familiar with the negotiations who spoke on condition of anonymity said terms of the deal would include giving Syncora control of a city parking garage near Grand Circus for 30 years. The deal also includes a 20-year lease extension of operation of the U.S. part of the Detroit-Windsor Tunnel. The insurer currently controls the U.S. side of the tunnel through a contract that expires in 2020.
Syncora owns the company, American Roads, that operates the tunnel on the city’s behalf. Windsor owns and operates the Canadian side of the tunnel. Proceeds from the lease are around $4 million to $5 million a year. The new lease would go through 2040.
Syncora also would receive $23.5 million in cash through so-called B-notes, bonds Detroit had already floated in the bankruptcy, the person said.
Despite the tentative deal, Bank of America and UBS stand in the way.
Syncora won’t agree to settle with Detroit unless the banks release the insurer from its responsibility to cover the banks’ losses on an $85-million deal brokered in the spring to eliminate a costly swaps deal reached by Kwame Kilpatrick’s administration to secure a steady interest rate on a $1.4-billion debt.
The banks were owed nearly $290 million on the swaps but agreed to take significantly less after Rhodes said the swaps were probably illegal.
If the banks don’t agree to end their legal fight against Syncora, Detroit may still face the insurer in court.
“Once again, the swap banks are standing in the way,” one person familiar with the deal said.
The news comes on the same day the city struck a tentative 40-year deal with Macomb, Oakland and Wayne counties to create a regional water authority that will provide $50 million annually to finance badly needed upgrades and help low-income residents avoid water shutoffs. The two deals represent major breakthroughs toward resolving the city’s $18-billion bankruptcy, the largest in U.S. history.
The city has already reached deals with unions and pensioners, leaving FGIC and the hedge funds as the last big creditor holdout in Detroit’s bankruptcy. There are hundreds of small and objectors and creditors.
Syncora would get a long-term lease on the city’s parking garage beneath Grand Circus Park, which could raise significant funds for the bond insurer, but it also must invest $13 million in upgrades. After it invests for repairs, Syncora would keep the proceeds from running the garage but would eventually give Detroit 25% of the profits. Syncora would also get parking bonds worth $21 million.
Syncora also would get $6.2 million in credits toward purchasing city property and buildings that might go up for sale in the coming years, including Joe Louis Arena. Syncora could use the credits to offset the sale price.
The settlements reflect a significant achievement for the largest municipal bankruptcy that was filed on July 18, 2013. Many thought it would take years to settle. A Baton Rouge Bankruptcy Lawyer represents businesses involved in a wide range of bankruptcy cases.
But several days into the city’s historic bankruptcy trial — after which Rhodes will have the power to approve the plan of adjustment — resolving the dispute with Syncora would be a major breakthrough.
The company has been the city’s most vociferous opponent, decrying Orr’s plan to favor retirees over financial creditors and transfer the Detroit Institute of Arts to an independent trust in exchange for outside funding to reduce pension cuts.
In August, Syncora drew Rhodes’ ire by accusing bankruptcy mediators Gerald Rosen and Eugene Driker of “naked favoritism” on behalf of pensioners. The judge is considering sanctions on Syncora’s attorneys. But a deal could help smooth over the differences.
John Roach, spokesman for Mayor Mike Duggan, said the mayor is declining to comment on the bankruptcy process, which is Orr’s responsibility. Orr’s office also refused to comment Tuesday.
Syncora and FGIC insured a $1.4-billion pension obligation certificates of participation deal brokered by Kilpatrick’s administration in 2005 to eliminate the city’s unfunded pension liabilities.A Tulsa Tax Lawyer is reviewing the details of this case.
Doug Bernstein, a bankruptcy attorney and partner with Plunkett Cooney who represents the outside foundations that helped fund the grand bargain to save the DIA and reduce pension cuts said Rhodes will still want to closely evaluate the bankruptcy plan and decide if it will solve the city’s financial issues after the city emerges from bankruptcy.
“The city still has to get past that feasibility hurdle,” Bernstein said. “The biggest remaining hurdle is feasibility.”
FGIC, as the last remaining major creditor objecting to the plan, will have a tougher time arguing against the plan on its own, Bernstein said.
30 December 2013
BANKRUPTCY DEBT DEAL TO SAVE DETROIT ABOUT $65M
Story first appeared on DetroitNews.com.
Detroit — Emergency Manager Kevyn Orr and lawyers for two banks reached a new $165 million agreement Tuesday for terminating a pension debt deal blamed for plunging Detroit into bankruptcy.
The new agreement saves Detroit an additional $65 million and was announced in court this morning before Chief U.S. District Judge Gerald Rosen, who is the lead mediator in Detroit’s bankruptcy case. The city spent two days trying to reach more favorable terms for ending the pension deal as part of a settlement seen as crucial to Orr's overall plan to shed billions in city debt.
“It's the first, I think it's fair to say, significant agreement in the bankruptcy,” Rosen said today, according to a court transcript. “We understand this has been difficult for everybody and we appreciate it.”
The deal must be finalized by Jan. 31 and approved by U.S. Bankruptcy Judge Steven Rhodes. It was unclear whether bond insurers and others who objected to the original $230 million deal will fight the new agreement.
“We are very pleased and hope that this is a change that Judge Rhodes is happy with,” lead Detroit bankruptcy lawyer David Heiman said Tuesday outside federal court before climbing into a taxi.
Asked if he was happy about reaching the deal early on Christmas Eve, he simply said: “Yes.”
Mediation talks have been private and security guards were stationed outside Rosen’s courtroom Tuesday morning. Rosen ordered the city, banks and bond insurers to meet Monday and on Christmas Eve to negotiate a deal that could free up money for restructuring.
In all, Detroit will save $128 million by terminating the troubled debt deal reached during ex-Mayor Kwame Kilpatrick’s tenure. That represents a 43 percent savings, according to Orr.
The settlement means Detroit won’t have to borrow as much money to pay off two banks, UBS and Bank of America. Instead of borrowing $350 million from London-based Barclays, the city will borrow $288 million.
Detroit will pay $165 million to the banks and spend $120 million on basic city services, including blight removal, updating city information technology and other “quality of life” improvements.
“This is an important development for the city and its residents because it means we can start moving forward on implementing needed investments in public safety and services,” Orr said in a statement Tuesday.
The negotiation sessions were ordered late last week after Rhodes expressed concern about Detroit’s plan to pay two banks up to $230 million to end an interest rate swap arrangement. Rhodes questioned whether the deal was fair to other city creditors.
“Clearly they were sent a message and they listened to what Judge Rhodes had to say – that he wasn’t going to approve it,” said Douglas Bernstein, a Bloomfield Hills attorney and expert on municipal bankruptcy. “Absent that push, nobody would have done anything and they would have had to fight it out with the other creditors.”
The renegotiated deal comes three weeks after Rhodes ruled that Detroit is eligible for Chapter 9 bankruptcy relief and said pensions can be cut in bankruptcy court.
“This is an indication that Detroit, at least for now, is starting to follow the same pattern as bankruptcies in other cities in that once you get by the eligibility dispute, settlements fall into place,” Bernstein said.
Before Rhodes raised his concern, Detroit proposed borrowing $350 million from Barclays. Orr wants to use most of the loan to pay off UBS and Bank of America for a hedge owed on interest rate swaps tied to $1.44 billion in 2005-06 pension debt.
A city banking consultant Friday said Detroit’s legal team was engaged in “extraordinarily active” negotiations with the banks to lower the swap settlement amount. Based on the value of the swaps, which is calculated based on increasing interest rates, Detroit could owe UBS and Bank of America $200 million if the city pays the banks 75 cents on the dollar, said James Doak, managing director at the consulting firm Miller Buckfire.
Several groups had objected to the initial deal, arguing it gave banks a greater payout than other creditors. Orr has proposed paying pensioners as little as 20 cents on the dollar.
Rhodes halted a trial Wednesday to determine whether Detroit could borrow the money and settle the swaps debt before presenting its debt-cutting plan of adjustment.
The judge scheduled the trial to continue Jan. 3.
A two-day trial last week focused on a soured loan deal Kilpatrick’s administration used to pump $1.44 billion into pension funds in 2005 and 2006. The deal included an interest rate swap piled on $800 million of pension debt, court records show.
Detroit’s interest rate swaps with UBS and Bank of America were supposed to protect the city from rising interest rates. But the deal soured for Detroit when prevailing interest rates plummeted in 2008-09, causing the city’s annual payments on the swaps to rise to $50 million.
Detroit — Emergency Manager Kevyn Orr and lawyers for two banks reached a new $165 million agreement Tuesday for terminating a pension debt deal blamed for plunging Detroit into bankruptcy.
The new agreement saves Detroit an additional $65 million and was announced in court this morning before Chief U.S. District Judge Gerald Rosen, who is the lead mediator in Detroit’s bankruptcy case. The city spent two days trying to reach more favorable terms for ending the pension deal as part of a settlement seen as crucial to Orr's overall plan to shed billions in city debt.
“It's the first, I think it's fair to say, significant agreement in the bankruptcy,” Rosen said today, according to a court transcript. “We understand this has been difficult for everybody and we appreciate it.”
The deal must be finalized by Jan. 31 and approved by U.S. Bankruptcy Judge Steven Rhodes. It was unclear whether bond insurers and others who objected to the original $230 million deal will fight the new agreement.
“We are very pleased and hope that this is a change that Judge Rhodes is happy with,” lead Detroit bankruptcy lawyer David Heiman said Tuesday outside federal court before climbing into a taxi.
Asked if he was happy about reaching the deal early on Christmas Eve, he simply said: “Yes.”
Mediation talks have been private and security guards were stationed outside Rosen’s courtroom Tuesday morning. Rosen ordered the city, banks and bond insurers to meet Monday and on Christmas Eve to negotiate a deal that could free up money for restructuring.
In all, Detroit will save $128 million by terminating the troubled debt deal reached during ex-Mayor Kwame Kilpatrick’s tenure. That represents a 43 percent savings, according to Orr.
The settlement means Detroit won’t have to borrow as much money to pay off two banks, UBS and Bank of America. Instead of borrowing $350 million from London-based Barclays, the city will borrow $288 million.
Detroit will pay $165 million to the banks and spend $120 million on basic city services, including blight removal, updating city information technology and other “quality of life” improvements.
“This is an important development for the city and its residents because it means we can start moving forward on implementing needed investments in public safety and services,” Orr said in a statement Tuesday.
The negotiation sessions were ordered late last week after Rhodes expressed concern about Detroit’s plan to pay two banks up to $230 million to end an interest rate swap arrangement. Rhodes questioned whether the deal was fair to other city creditors.
“Clearly they were sent a message and they listened to what Judge Rhodes had to say – that he wasn’t going to approve it,” said Douglas Bernstein, a Bloomfield Hills attorney and expert on municipal bankruptcy. “Absent that push, nobody would have done anything and they would have had to fight it out with the other creditors.”
The renegotiated deal comes three weeks after Rhodes ruled that Detroit is eligible for Chapter 9 bankruptcy relief and said pensions can be cut in bankruptcy court.
“This is an indication that Detroit, at least for now, is starting to follow the same pattern as bankruptcies in other cities in that once you get by the eligibility dispute, settlements fall into place,” Bernstein said.
Before Rhodes raised his concern, Detroit proposed borrowing $350 million from Barclays. Orr wants to use most of the loan to pay off UBS and Bank of America for a hedge owed on interest rate swaps tied to $1.44 billion in 2005-06 pension debt.
A city banking consultant Friday said Detroit’s legal team was engaged in “extraordinarily active” negotiations with the banks to lower the swap settlement amount. Based on the value of the swaps, which is calculated based on increasing interest rates, Detroit could owe UBS and Bank of America $200 million if the city pays the banks 75 cents on the dollar, said James Doak, managing director at the consulting firm Miller Buckfire.
Several groups had objected to the initial deal, arguing it gave banks a greater payout than other creditors. Orr has proposed paying pensioners as little as 20 cents on the dollar.
Rhodes halted a trial Wednesday to determine whether Detroit could borrow the money and settle the swaps debt before presenting its debt-cutting plan of adjustment.
The judge scheduled the trial to continue Jan. 3.
A two-day trial last week focused on a soured loan deal Kilpatrick’s administration used to pump $1.44 billion into pension funds in 2005 and 2006. The deal included an interest rate swap piled on $800 million of pension debt, court records show.
Detroit’s interest rate swaps with UBS and Bank of America were supposed to protect the city from rising interest rates. But the deal soured for Detroit when prevailing interest rates plummeted in 2008-09, causing the city’s annual payments on the swaps to rise to $50 million.
24 December 2012
Michigan's Right-To-Work and The Hostess Bankruptcy: The Two Non-Stories Of the Year
originally appeared in Forbes:
Op/ed editors are more privy than most to what’s on the minds of opinion writers. There’s no money to be made on this information, but editors know ahead of time what the commentariat considers news.
Over the past six weeks this editor of what is a consciously libertarian page has been inundated with all manner of downcast op/eds on the Hostess bankruptcy, followed by upbeat ones about Michigan instituting a right-to-work law. While the submissions were almost invariably good, it says here that they were a near total waste of time.
Consumers looking for quality home remodeling sources can work with a local professional that stands by it's work.
Considering Hostess, the fact that it’s a great brand with even better snack foods (my favorite are the chocolate chip muffins) means that soon enough someone will buy the company out bankruptcy. Thank goodness. Bankruptcy, though trumped up by bank and car bailout apologists as code for disappearance, really only means a positive change of ownership.
Legal professionals working in the specialty of child abuse defense are located throughout the state of michigan.
Still, amid Hostess’s hurtle toward bankruptcy copious amounts of ink were spilled on how the snackmaker’s decline signaled the horrors of labor unions stuck in the past. About this, labor unions are stuck in the past for presuming that the very investors who set wages will give in to their wage demands, but that’s really beside the point.
Quality refrigeration and walk-in coolers from SRC Refrigeration are available for restaurants and commercial businesses.
Not asked enough amid Hostess’s decline was why its management employed American workers to begin with. Forget about the fact that the workers were unionized and led by unions demanding absurd levels of compensation, the better question was why Hostess snacks were being baked in the U.S. at all.
Mass production of sugary U.S. goods is very much yesterday’s work, so for so many conservative and libertarian commentators to frame the Hostess story as one of profit-seeking management beset by gluttonous unions was for them to miss the real story. It wasn’t one about an iconic brand thrown into bankruptcy by greedy unions; rather the real, unreported story was that Hostess’s decision to bake its goods in the U.S. was a waste of limited labor, and as such, anti-profit.
If not by labor unions, the very presumption of Hostess’s management that it could profitably mass produce Hostess snacks in the U.S. ensured its future bankruptcy, or departure from the U.S. Of course when Hostess is inevitably purchased, it’s a fair bet that its new owners will quickly shift production to Mexico or some reasonable facsimile.
The above will constitute a good story about free trade and the always healthy division of labor, though it’s a near certainty that when this happens, conservatives and libertarians who should know better will frame the out-migration as evidence of the horrors of labor unions. Not defending unions for a second (though individuals should be allowed to sell their labor any way they wish, including from within unions), they’re really not the Hostess story.
Moving to last week, economically depressed and unionized Michigan adopted a right-to-work law that will give the individual the freedom to not pay dues and not join a union in a unionized workplace. Hysterics on the left talked up the cruelty of such an anti-worker law, but the real truth there is that those who feel their needs are better served by unions will still be free to join them.
On the right, those made downcast by Hostess’s bankruptcy were positively ecstatic about what had transpired in the Wolverine state. In a sense their excitement was warranted when we consider that the right to free association is one of our most fundamental ones. The shame is that states can restrict such a right as is.
After that, there’s really no story to the story that captivated so many who lean capitalist. Indeed, if it’s true that investors, not CEOs, ultimately set wages, and it is, good luck finding investors willing to fund such a labor intensive business in today’s United States. Labor intensive production has long been moving offshore, and that’s been a good thing for the economy as U.S. workers migrated to higher value service work.
About the above, those who should once again know better would cite unions as the cause of work being moved offshore, but this would be a false read. The better answer is that basic economics has pushed low value work out of the United States. As evidenced by low factory pay in China, investors have long understood that the work is worth the price of a Starbucks latte – and falling – on a daily basis, so factory jobs would have left no matter the status of labor unions in the United States.
Much as the economic nostalgists in our midst might wish otherwise, factory labor is yesterdays’ work, and the pay is all the evidence we need. If ever manufacturing jobs come roaring back to the U.S., we’ll know we’re in trouble. Investors loathe backwards moving economies, and manufacturing screams blast to the past. Enough said.
Of course union bashers will trot out statistics showing that job creation is greater in right-to-work states, but it seems here the economists who divine these statistics are mistaking cause and effect. Indeed, what investor would commit capital to any kind of business that has the potential to be unionized as is?
Instead, it’s probably a safe bet that states which coddle unions are generally less pro business than are states that don’t. Businesses that can be unionized increasingly don’t make sense (see the bankruptcies of airlines and car companies, plus their friends in Washington) absent political pull, so the existence or lack thereof of a right-to-work law wouldn’t matter much in today’s advanced economy. But businesses to varying degrees migrate to the environments most conducive to business, which likely explains the job disparity.
Back to Hostess, one can only hope it’s sold soon so that its numerous devotees can start enjoying its snacks again. As for Michigan, it should be applauded for embracing a law that is pro business; the problem again that unions lost economic relevance long ago. Because they did, the Hostess/union story is a non sequitur, while the Michigan one is mostly meaningless as it applies to the state’s economic health.
Op/ed editors are more privy than most to what’s on the minds of opinion writers. There’s no money to be made on this information, but editors know ahead of time what the commentariat considers news.
Over the past six weeks this editor of what is a consciously libertarian page has been inundated with all manner of downcast op/eds on the Hostess bankruptcy, followed by upbeat ones about Michigan instituting a right-to-work law. While the submissions were almost invariably good, it says here that they were a near total waste of time.
Consumers looking for quality home remodeling sources can work with a local professional that stands by it's work.
Considering Hostess, the fact that it’s a great brand with even better snack foods (my favorite are the chocolate chip muffins) means that soon enough someone will buy the company out bankruptcy. Thank goodness. Bankruptcy, though trumped up by bank and car bailout apologists as code for disappearance, really only means a positive change of ownership.
Legal professionals working in the specialty of child abuse defense are located throughout the state of michigan.
Still, amid Hostess’s hurtle toward bankruptcy copious amounts of ink were spilled on how the snackmaker’s decline signaled the horrors of labor unions stuck in the past. About this, labor unions are stuck in the past for presuming that the very investors who set wages will give in to their wage demands, but that’s really beside the point.
Quality refrigeration and walk-in coolers from SRC Refrigeration are available for restaurants and commercial businesses.
Not asked enough amid Hostess’s decline was why its management employed American workers to begin with. Forget about the fact that the workers were unionized and led by unions demanding absurd levels of compensation, the better question was why Hostess snacks were being baked in the U.S. at all.
Mass production of sugary U.S. goods is very much yesterday’s work, so for so many conservative and libertarian commentators to frame the Hostess story as one of profit-seeking management beset by gluttonous unions was for them to miss the real story. It wasn’t one about an iconic brand thrown into bankruptcy by greedy unions; rather the real, unreported story was that Hostess’s decision to bake its goods in the U.S. was a waste of limited labor, and as such, anti-profit.
If not by labor unions, the very presumption of Hostess’s management that it could profitably mass produce Hostess snacks in the U.S. ensured its future bankruptcy, or departure from the U.S. Of course when Hostess is inevitably purchased, it’s a fair bet that its new owners will quickly shift production to Mexico or some reasonable facsimile.
The above will constitute a good story about free trade and the always healthy division of labor, though it’s a near certainty that when this happens, conservatives and libertarians who should know better will frame the out-migration as evidence of the horrors of labor unions. Not defending unions for a second (though individuals should be allowed to sell their labor any way they wish, including from within unions), they’re really not the Hostess story.
Moving to last week, economically depressed and unionized Michigan adopted a right-to-work law that will give the individual the freedom to not pay dues and not join a union in a unionized workplace. Hysterics on the left talked up the cruelty of such an anti-worker law, but the real truth there is that those who feel their needs are better served by unions will still be free to join them.
On the right, those made downcast by Hostess’s bankruptcy were positively ecstatic about what had transpired in the Wolverine state. In a sense their excitement was warranted when we consider that the right to free association is one of our most fundamental ones. The shame is that states can restrict such a right as is.
After that, there’s really no story to the story that captivated so many who lean capitalist. Indeed, if it’s true that investors, not CEOs, ultimately set wages, and it is, good luck finding investors willing to fund such a labor intensive business in today’s United States. Labor intensive production has long been moving offshore, and that’s been a good thing for the economy as U.S. workers migrated to higher value service work.
About the above, those who should once again know better would cite unions as the cause of work being moved offshore, but this would be a false read. The better answer is that basic economics has pushed low value work out of the United States. As evidenced by low factory pay in China, investors have long understood that the work is worth the price of a Starbucks latte – and falling – on a daily basis, so factory jobs would have left no matter the status of labor unions in the United States.
Much as the economic nostalgists in our midst might wish otherwise, factory labor is yesterdays’ work, and the pay is all the evidence we need. If ever manufacturing jobs come roaring back to the U.S., we’ll know we’re in trouble. Investors loathe backwards moving economies, and manufacturing screams blast to the past. Enough said.
Of course union bashers will trot out statistics showing that job creation is greater in right-to-work states, but it seems here the economists who divine these statistics are mistaking cause and effect. Indeed, what investor would commit capital to any kind of business that has the potential to be unionized as is?
Instead, it’s probably a safe bet that states which coddle unions are generally less pro business than are states that don’t. Businesses that can be unionized increasingly don’t make sense (see the bankruptcies of airlines and car companies, plus their friends in Washington) absent political pull, so the existence or lack thereof of a right-to-work law wouldn’t matter much in today’s advanced economy. But businesses to varying degrees migrate to the environments most conducive to business, which likely explains the job disparity.
Back to Hostess, one can only hope it’s sold soon so that its numerous devotees can start enjoying its snacks again. As for Michigan, it should be applauded for embracing a law that is pro business; the problem again that unions lost economic relevance long ago. Because they did, the Hostess/union story is a non sequitur, while the Michigan one is mostly meaningless as it applies to the state’s economic health.
05 June 2012
Class Action Suits Against GM Still Out There
Story first appeared in USA Today.
Q: Are there any securities class-action lawsuits filed on behalf of former General Motors shareholders who lost money from the bankruptcy restructuring?
A: Investors in the company formerly known as Motors Liquidation may feel as though they got run over.
These investors had owned shares of General Motors prior to the massive bankruptcy restructuring proceedings in 2009.
The company underwent the restructuring, then re-emerged as a new company called General Motors. This new company sold shares to the public in 2010, raised more than $16 billion from an initial public offering and was reborn, again, as General Motors (GM).
Investors in the pre-restructuring company formerly known as General Motors saw their shares get delisted and end up trading for pennies on an informal trading marketplace under the name Motors Liquidation.
Some investors in the old General Motors continue to be frustrated by the turn of events. And when investors feel wronged, they are able to turn to the courts.
Investors who want to check to see if any securities action lawsuits have been filed can get quick answers from the Stanford Law School Securities Class Action Clearinghouse. This site aggregates securities class-action lawsuits and helps investors see if a stock they own or owned might be involved in litigation.
Not surprisingly, General Motors has been the subject of several securities class-action lawsuits. The cases have been consolidated into a suit filed on Sept. 19, 2005, called Folksam Asset Management, et al. v. General Motors.
Q: Are there any securities class-action lawsuits filed on behalf of former General Motors shareholders who lost money from the bankruptcy restructuring?
A: Investors in the company formerly known as Motors Liquidation may feel as though they got run over.
These investors had owned shares of General Motors prior to the massive bankruptcy restructuring proceedings in 2009.
The company underwent the restructuring, then re-emerged as a new company called General Motors. This new company sold shares to the public in 2010, raised more than $16 billion from an initial public offering and was reborn, again, as General Motors (GM).
Investors in the pre-restructuring company formerly known as General Motors saw their shares get delisted and end up trading for pennies on an informal trading marketplace under the name Motors Liquidation.
Some investors in the old General Motors continue to be frustrated by the turn of events. And when investors feel wronged, they are able to turn to the courts.
Investors who want to check to see if any securities action lawsuits have been filed can get quick answers from the Stanford Law School Securities Class Action Clearinghouse. This site aggregates securities class-action lawsuits and helps investors see if a stock they own or owned might be involved in litigation.
Not surprisingly, General Motors has been the subject of several securities class-action lawsuits. The cases have been consolidated into a suit filed on Sept. 19, 2005, called Folksam Asset Management, et al. v. General Motors.
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07 May 2012
Detroit May Have to File Bankruptcy
Story first appeared in The Detroit News.
Some Lansing Bankruptcy Lawyers contend bankruptcy still is possible for Detroit, despite a recently signed agreement with the state to financially restructure the city.
Many don't want to openly talk about the possibility, but others contend a Chapter 9 bankruptcy is possible if the economy further stalls or efforts falter to control municipal legacy costs and expenses.
Strategically, bankruptcy has to be kept on the table. There is no less probability of bankruptcy than there was previously. As a practical matter, the collateral damage from a bankruptcy may be so great that in the end the governor simply would simply not allow it to happen.
By law, Michigan cities can't file for bankruptcy unless they are under an emergency manager. The threat of one last month prompted the Mayor and the City Council to sign a consent agreement this month to create a nine-member financial advisory board and hire a chief financial officer and program management director to manage key reforms.
Last week, the Michigan Governor repeated his opposition to bankruptcy, but he refused to take it off the table should the consent agreement fail.
That's a hypothetical. As a practical matter, to say absolutely anything is a very dangerous proposition. The idea is to try to avoid it by working together but that's depending on us progressing.
The governor said he wants the reforms in Detroit to take place quickly so that issue starts going into the background and not becoming relevant.
The mayor has said repeatedly that he opposes bankruptcy but argued any restructuring would fail without some extra financial assistance from the state.
A State Rep. who serves on the House appropriations committee, said there's still some fear that Detroit could have to file Chapter 9. He noted the city faces incredible challenges with the consent agreement, including approval of a three-year budge for the first time in history. But he said some restructuring is necessary to keep the city from bankruptcy.
If the city doesn't get any money, the answer to that question is, yes, there is a possibility that that could happen.
Whispers of bankruptcy began late last year when the mayor announced that the city could run out of cash by April.
That prompted the governor to order a fiscal review of the city and create a financial review team to pore through the city's books. Its review prompted the governor to press for a consent agreement.
To solve its immediate cash crunch, the city borrowed $137 million in state-backed bonds.
The city has long-term liabilities of $12 billion and risks losing millions more if its credit rating is downgraded, according to Traverse City Bankruptcy Lawyers.
Bankruptcy would be a costly alternative that would cost taxpayers millions as the process could take up to five years, experts say. One advantage: Unlike an emergency manager, a bankruptcy judge could restructure bonds or debts to vendors.
Should it happen, Detroit would be the largest city to file for bankruptcy. Cleveland defaulted on its bank loans in the late 1970s but never filed, say Chicago Bankruptcy Lawyers.. There were bankruptcy filings in Orange County in 1994 and Vallejo, Calif., in 2008 and both came through Chapter 9 after their finances were restructured.
A former chief of the Detroit Police Department who recently served on the governor's financial review board for the city, said there's no danger of bankruptcy unless Detroit fails to adhere to the financial agreement. That's unlikely because of consent agreement safeguards including the hiring of a chief financial officer and program management director. If there's a failure in any of those areas, there's that possibility.
The hard decisions still have to be made, and they are going to have to be made on things like how many employees can the city afford, what functions are going to have to be spun off to other providers, what functions are simply going to be eliminated altogether.
For more local and Michigan business related news, visit the Michigan Business News blog.
For national and worldwide related business news, visit the Peak News Room blog.
For healthcare and medical related news, visit the Healthcare and Medical blog.
For law related news, visit the Nation of Law blog.
For real estate and home related news, visit the Commercial and Residential Real Estate blog.
For technology and electronics related news, visit the Electronics America blog.
For organic SEO and web optimization related news, visit the SEO Done Right blog.
Some Lansing Bankruptcy Lawyers contend bankruptcy still is possible for Detroit, despite a recently signed agreement with the state to financially restructure the city.
Many don't want to openly talk about the possibility, but others contend a Chapter 9 bankruptcy is possible if the economy further stalls or efforts falter to control municipal legacy costs and expenses.
Strategically, bankruptcy has to be kept on the table. There is no less probability of bankruptcy than there was previously. As a practical matter, the collateral damage from a bankruptcy may be so great that in the end the governor simply would simply not allow it to happen.
By law, Michigan cities can't file for bankruptcy unless they are under an emergency manager. The threat of one last month prompted the Mayor and the City Council to sign a consent agreement this month to create a nine-member financial advisory board and hire a chief financial officer and program management director to manage key reforms.
Last week, the Michigan Governor repeated his opposition to bankruptcy, but he refused to take it off the table should the consent agreement fail.
That's a hypothetical. As a practical matter, to say absolutely anything is a very dangerous proposition. The idea is to try to avoid it by working together but that's depending on us progressing.
The governor said he wants the reforms in Detroit to take place quickly so that issue starts going into the background and not becoming relevant.
The mayor has said repeatedly that he opposes bankruptcy but argued any restructuring would fail without some extra financial assistance from the state.
A State Rep. who serves on the House appropriations committee, said there's still some fear that Detroit could have to file Chapter 9. He noted the city faces incredible challenges with the consent agreement, including approval of a three-year budge for the first time in history. But he said some restructuring is necessary to keep the city from bankruptcy.
If the city doesn't get any money, the answer to that question is, yes, there is a possibility that that could happen.
Whispers of bankruptcy began late last year when the mayor announced that the city could run out of cash by April.
That prompted the governor to order a fiscal review of the city and create a financial review team to pore through the city's books. Its review prompted the governor to press for a consent agreement.
To solve its immediate cash crunch, the city borrowed $137 million in state-backed bonds.
The city has long-term liabilities of $12 billion and risks losing millions more if its credit rating is downgraded, according to Traverse City Bankruptcy Lawyers.
Bankruptcy would be a costly alternative that would cost taxpayers millions as the process could take up to five years, experts say. One advantage: Unlike an emergency manager, a bankruptcy judge could restructure bonds or debts to vendors.
Should it happen, Detroit would be the largest city to file for bankruptcy. Cleveland defaulted on its bank loans in the late 1970s but never filed, say Chicago Bankruptcy Lawyers.. There were bankruptcy filings in Orange County in 1994 and Vallejo, Calif., in 2008 and both came through Chapter 9 after their finances were restructured.
A former chief of the Detroit Police Department who recently served on the governor's financial review board for the city, said there's no danger of bankruptcy unless Detroit fails to adhere to the financial agreement. That's unlikely because of consent agreement safeguards including the hiring of a chief financial officer and program management director. If there's a failure in any of those areas, there's that possibility.
The hard decisions still have to be made, and they are going to have to be made on things like how many employees can the city afford, what functions are going to have to be spun off to other providers, what functions are simply going to be eliminated altogether.
For more local and Michigan business related news, visit the Michigan Business News blog.
For national and worldwide related business news, visit the Peak News Room blog.
For healthcare and medical related news, visit the Healthcare and Medical blog.
For law related news, visit the Nation of Law blog.
For real estate and home related news, visit the Commercial and Residential Real Estate blog.
For technology and electronics related news, visit the Electronics America blog.
For organic SEO and web optimization related news, visit the SEO Done Right blog.
07 September 2011
Saab Bankrupt
Story first appeared in USA TODAY.
Swedish car maker Saab is filing for bankruptcy protection in a self-managed reconstruction process, the Associated Press reports.
Saab's owner Swedish Automobile, says the Trollhattan-based Saab and its subsidiaries, are filing for a "voluntary reorganization" at Vanersborg District Court on Wednesday.
It cites Saab's limited funds and says the move is to secure short-term stability while simultaneously attracting additional funding.
The brand has been plagued by production stoppages and problems to pay its suppliers and 3,700 staff for months.
Creditors have threatened to put it into bankruptcy unless it pays up.
Netherlands-based Swedish Automobile brought Saab out of a liquidation process by buying it from General Motors in 2010.
Swedish car maker Saab is filing for bankruptcy protection in a self-managed reconstruction process, the Associated Press reports.
Saab's owner Swedish Automobile, says the Trollhattan-based Saab and its subsidiaries, are filing for a "voluntary reorganization" at Vanersborg District Court on Wednesday.
It cites Saab's limited funds and says the move is to secure short-term stability while simultaneously attracting additional funding.
The brand has been plagued by production stoppages and problems to pay its suppliers and 3,700 staff for months.
Creditors have threatened to put it into bankruptcy unless it pays up.
Netherlands-based Swedish Automobile brought Saab out of a liquidation process by buying it from General Motors in 2010.
13 April 2010
Lyondell Leaves Kalamazoo Poisoned as Bankruptcies Thwart Toxic Cleanups
Bloomberg
Kalamazoo Cleanup Delayed After Lyondell Bankruptcy
Environmentalist Jeff Spoelstra says an 80-mile stretch of the Kalamazoo River that runs through toxin-laced land in southwestern Michigan was on its way to becoming safe again. The area, once home to Potawatomi Indians and Dutch celery farmers, was finally on the verge of getting cleaned up.
Then, in January 2009, Lyondell Chemical Co. filed for bankruptcy protection. The Houston-based petrochemical giant argued in court that as it reorganized, it could avoid what the U.S. Environmental Protection Agency said were about $2.5 billion in cleanup costs for the river, which flows into Lake Michigan, and another $2.5 billion in liabilities at 10 other polluted spots across the country.
The filing threw the EPA’s plan into turmoil, Bloomberg Markets magazine reports in its May issue.
About 47,000 hazardous waste sites were fouling U.S. air, land and water at the end of 2007, the latest EPA figures show. States, reeling from $196 billion in deficits this year, can’t handle the cleanup costs. And the federal Superfund, created by Congress in 1980 to go after polluters at the worst sites and foot the bill when they couldn’t pay, fell to about $1.3 billion in 2007 from about $1.5 billion in 1999.
Companies navigating the worst economy in generations say they’re strapped, too. Lyondell, part of Rotterdam-based LyondellBasell Industries AF, became one of the 60,837 businesses filing for bankruptcy in the U.S. last year, a 40 percent jump from 2008, according to the American Bankruptcy Institute.
Investors Suffer
Bankruptcy has an advantage for companies with liabilities: It can clear a firm of legal claims, which companies argue can extend to toxic-removal costs.
Investors suffer in any bankruptcy. Shareholders can be wiped out, while bondholders and hedge funds trading in a company’s debt are at the mercy of the bankruptcy judge.
If a company has to pay the billions the U.S. seeks for cleanups, its debt investors can end up getting pennies on the dollar. If the decision goes the other way, the costs can fall on taxpayers.
“It’s a no-win situation,” says Evan D. Flaschen, a bankruptcy lawyer at Bracewell & Giuliani LLP, who isn’t involved in cases mentioned in this story.
“If the debtor can walk, the toxins keep boiling, often getting worse with time. If the debtor has to pay billions for a cleanup, they might go out of business, losing thousands of jobs. Pick your poison.”
Money From Stone
No one has found a solution.
“Congress should have created a priority for this kind of liability,” says Joel Gross, a former chief of environmental enforcement at the U.S. Department of Justice who now practices bankruptcy law at Arnold & Porter LLP in Washington. “You can’t get money from a stone.”
At least $13.2 billion in environmental costs were at stake at the end of February in just four cases in U.S. Bankruptcy Court in lower Manhattan: Lyondell, fellow chemical makers Chemtura Corp. and Tronox Inc., and General Motors Co.
These companies, sometimes along with others, are responsible for more than 200 sites polluted during the past century, according to EPA documents.
The companies say their bankruptcy filings entitled them to steer clear of cleanup costs at sites where a corporate predecessor or related company did the polluting.
Nobody Wins
Firms in Chapter 11 that can’t cover environmental claims may end up liquidating, firing employees and hurting bondholders and other investors.
Natasha Labovitz, a lawyer with Kirkland & Ellis LLP in New York who represents Chemtura, says uncertainty about the company’s environmental costs is a barricade to reorganizing.
“The U.S. has incentive to make as big a claim as it can; there will be no chance to broaden it later,” she says. “The numbers may come in far lower.”
Middlebury, Connecticut-based Chemtura, which filed for bankruptcy in March 2009, is trying to avoid cleanup costs for 197 sites, according to EPA claims. Among them is the Gowanus Canal, a 1.8-mile (2.9-kilometer) stretch of brackish tidal water that extends from New York Harbor into Brooklyn.
The U.S. Justice Department, on behalf of the EPA, has identified polychlorinated biphenyls (PCBs), pesticides, metals and other toxins in the canal. The issue is being decided by a U.S. district judge after the company lost a fight with the government in which it sought to keep the decision in the hands of a federal bankruptcy judge.
‘Just Not Enough’
Lyondell came to a settlement behind closed doors and set aside $250 million to cover all of its environmental costs, according to a March 1 announcement. The EPA had been trying to get it to pay $5 billion.
“It’s just not enough,” says Spoelstra, who heads the environmental group Kalamazoo River Watershed Council.
He says there’s a chance he’ll never see the PCBs cleaned up and that the toxins in the river and its banks will seep through groundwater into the local aquifer. PCBs, banned by the EPA since 1976, have been found to cause cancer in animal studies. They penetrate skin, build up in the food chain and are difficult to degrade, according to the federal Agency for Toxic Substances and Disease Registry.
“There’s a cost to human health,” Spoelstra says.
“This settlement balances the priorities of environmental law with bankruptcy law,” said David Harpole, a Lyondell spokesman. “The formation and funding of the environmental trust provides a fair and equitable resolution of claims against these assets in Chapter 11. It provides funding for the remediation of these affected properties that would not otherwise exist.”
In another matter, parent LyondellBasell may face a U.S. bribery probe after telling prosecutors about a potentially improper payment linked to a project in Kazakhstan, according to four people with knowledge of the matter. LyondellBasell told the U.S. Justice Department it uncovered conduct that raised “compliance issues” under the U.S. Foreign Corrupt Practices Act, according to a March 30 court filing in Manhattan. A review of international holdings by a management team installed after the parent company’s bankruptcy triggered the disclosure, Harpole said.
Carp Corpses
Kalamazoo emerged as an environmental flash point more than half a century ago. In 1953, Life magazine published “Four acres of carp corpses on the Kalamazoo,” a photo that showed a massive fish kill traced to paper mill emissions.
The EPA singled out Lyondell to shoulder much of the cleanup cost after finding that a predecessor to its Millennium Holdings LLC unit dumped the PCBs from a paper-recycling business. Millennium and Georgia-Pacific LLC signed a consent order with the EPA, agreeing to restore a portion of the river.
“Kalamazoo was Celery City,” Spoelstra says. “Then it was Paper City. I don’t know what we are nowadays. The poster child for PCBs?”
Daniel Esty, a professor of environmental law at Yale University who advised President Barack Obama’s campaign on environmental issues, says some companies may file for bankruptcy to avoid cleanups. W.R. Grace & Co., the Columbia, Maryland-based specialty chemicals and construction materials company that filed for bankruptcy in 2001, said in its 2009 reorganization plan that a fight over the size of asbestos liabilities delayed its efforts to reorganize.
‘Moral Hazard’
“There’s a risk of moral hazard if companies can get out of responsibilities too easily,” Esty says, adding that he sees just two solutions: The EPA has to get tougher or Congress needs to resolve the issue.
“As a society, we lose when bankruptcy wipes the slate clean for the company,” he says.
Today, companies, governments and investors are wrestling over an even smaller pie in bankruptcies than they had before the credit crisis that began in 2007. Moody’s Investors Service says $700 billion of debt issued by firms with non-investment grade ratings will mature from 2012 to 2014.
The EPA collects just 23 percent of the amount a bankrupt company owes for a cleanup compared with 94 percent for a nonbankrupt firm, spokeswoman Deb Berlin says. Bankruptcies also make it difficult for the agency to settle with healthy companies at sites with multiple polluters.
More Aggressive
Esty says the Obama administration is becoming more aggressive in going after polluters. The Justice Department’s Environment and Natural Resources Division has increased the hours that attorneys work on bankruptcies with environmental issues, spokesman Andrew Ames says.
He cites the biggest recovery the EPA has ever gotten in a bankruptcy, from mining company Asarco LLC. In December, Grupo Mexico SAB, which owns Asarco, agreed to pay $1.79 billion for cleanup costs at 80 sites in the U.S.
Lyondell’s alleged Kalamazoo River pollution started with Allied Paper Inc., which dumped PCBs into the water from 1954 to 1985, according to EPA claims. Allied is now defunct.
SmithCorona Marchant Inc., a typewriter maker that no longer exists, bought Allied in 1967. Hanson Plc, a British building-materials company, acquired SmithCorona Marchant in the 1980s before splitting itself into four firms. One of Hanson’s 1996 spinoffs was Millennium Chemicals. Lyondell acquired Millennium Chemicals, which is related to Millennium Holdings, in a 2004 stock swap.
Stuck With Bill
If Lyondell had to pay the $5 billion the U.S. sought, the company’s creditors, claiming $23 billion, would have had their recoveries cut by almost 20 percent. As it stands, unsecured creditors will get just 16.8 cents on the dollar, according to Lyondell’s March 8, 2010, reorganization outline.
Because Lyondell settled and avoided further cleanup costs, Georgia-Pacific may be stuck with a larger bill. Georgia- Pacific spokeswoman Gail Smith says her company shouldn’t have to pay the entire cost.
“Lyondell should not be able to avoid liability for the Kalamazoo cleanup through bankruptcy,” she says.
Companies in bankruptcy can argue that environmental liabilities are just like other claims -- and that they can ditch them to get a fresh start.
“There’s a basic tension between environmental law -- with the principle that the polluter should pay, no matter how long ago it was -- and a belief in the bankruptcy code that there is a clean break with the past,” says Stephen Lubben, a bankruptcy law professor at Seton Hall University School of Law in Newark, New Jersey.
‘Keep Coming Back’
Subsidiaries, spinoffs and mergers complicate the issue by creating uncertainty over who the polluter is. Labovitz, the lawyer representing Chemtura, says her client is one of many companies with a long history at locations such as the Gowanus Canal. Now that Lyondell has settled, there’s still no clear law that resolves the conflict Lubben cites.
Labovitz says the issue is ripe for a Supreme Court ruling but nobody wants to be the guinea pig for a legal journey that could tie the company up in bankruptcy proceedings for years.
“Though historically these issues have been resolved by settling, they keep coming back,” she says. “It’s a lot of legal expense and distraction.”
For communities living with pollution, just figuring out who to sue can be a challenge. In 2003, the Mount Canaan Full Gospel Church Inc. in Birmingham, Alabama, began building a school on its property. During the digging, an oily smell erupted from the ground.
Complicated History
The church first sued Kerr-McGee Corp., Allied Energy Corp. and Colonial Pipeline Co. in U.S. District Court in Jefferson County, Alabama, in April 2006. It sought property damages, blaming toxins from a nearby petroleum facility.
In June of that year, Anadarko Petroleum Corp. acquired KerrMcGee, which in March had split off a new company called Tronox. Three years later, in January 2009, Tronox filed for bankruptcy. The church’s case moved to U.S. Bankruptcy Court in New York, where it met another logjam.
Tronox blamed Kerr-McGee and Anadarko for the pollution. It sued both of them in May 2009, alleging that Kerr-McGee fraudulently hid its role and had gone so far as to classify some properties as “secret sites.”
The U.S. intervened in May 2009, claiming in court documents that it was the largest creditor of Tronox and was owed what could be recovered from the hundreds of millions in environmental costs that Kerr-McGee had tried to avoid.
Day in Court
Court papers filed in Tronox’s bankruptcy list EPA claims for costs at 12 named hazardous sites, 270 labs or chemical manufacturing sites and more than 600 mining-related sites.
“We conduct our business with the utmost integrity and we’re not responsible for Tronox’s financial condition,” Anadarko spokesman John Christiansen says.
Four years later, the church still hasn’t had its day in court -- which is now almost 1,000 miles away. Lanny Vines, a lawyer for the church at Lanny Vines & Associates LLC in Birmingham, didn’t return calls for comment.
For General Motors, which reorganized its most profitable businesses and partially exited bankruptcy in July, the fate of toxic liabilities is up in the air. As a part of its Chapter 11 filing, GM left unattractive assets to be liquidated, including two units it created in the 1980s to hold environmental liabilities.
GM Units
In October, those companies entered bankruptcy, with dozens of claims against them and scant money for a cleanup. The two GM units still in bankruptcy owe about $1.2 billion in cleanup costs for 52 locations, EPA documents show.
One of the sites is a former waste-oil refining operation in Dearborn, Michigan, where the automaker disposed of hazardous substances in the 1980s, according to the EPA. The agency found PCBs, lead, arsenic, chromium, cadmium and barium at the facility. Dearborn Refining Co., which ran the business from the 1940s to 2005, failed to pay taxes, making the city of Dearborn the owner.
Robert McCann, a spokesman for the Michigan Department of Environmental Quality, says he doesn’t know whether the GM divisions that remain in bankruptcy will cover their debts. The state hasn’t even completed studies to determine the extent of pollution.
If the bankrupt units and the Superfund can’t pay, McCann says Michigan will be stuck with a gigantic bill it has no way to cover.
“As unsecured creditors, claimants have a legal path to have their claims satisfied on a pro rata basis with the proceeds” from the company’s bankruptcy assets sale, said Greg Martin, a GM spokesman. He said that if the company had been liquidated, unsecured creditors would have received nothing.
Health Risks
The state cleanup fund, which was unable to raise money through an attempted bond issue in 2008, once had $1 billion. It ran out of money in early 2009.
“Our last few dollars are being spent shutting down cleanup processes we can’t afford to finish,” McCann says.
As states and taxpayers wonder how many hazardous sites could be thrown into their laps by rising bankruptcies, no one has even begun to determine the long-term health risks of the pollution, Spoelstra says.
Infertility, lower I.Q. scores, stillborn babies and immune system complications are caused by one of Chemtura’s products, according to 18 scientists, doctors and others who filed court documents in March as part of a public-interest group seeking $9 billion. Chemtura’s bankruptcy judge, Robert Gerber, dismissed the claim, saying the group didn’t follow proper procedures for bringing its claim.
Kalamazoo Vice Mayor Hannah McKinney says the city and about a quarter million people served by a local aquifer fear their tap water may be at risk from carcinogenic PCBs now that Lyondell’s settlement has become final.
“It’s the most-maddening thing,” McKinney says. “It’s the community that’s going to lose.”
Beyond Kalamazoo, towns and cities wrestling with environmental cleanups and growing bankruptcies may find themselves stuck in the same toxic quagmire.
Then, in January 2009, Lyondell Chemical Co. filed for bankruptcy protection. The Houston-based petrochemical giant argued in court that as it reorganized, it could avoid what the U.S. Environmental Protection Agency said were about $2.5 billion in cleanup costs for the river, which flows into Lake Michigan, and another $2.5 billion in liabilities at 10 other polluted spots across the country.
The filing threw the EPA’s plan into turmoil, Bloomberg Markets magazine reports in its May issue.
About 47,000 hazardous waste sites were fouling U.S. air, land and water at the end of 2007, the latest EPA figures show. States, reeling from $196 billion in deficits this year, can’t handle the cleanup costs. And the federal Superfund, created by Congress in 1980 to go after polluters at the worst sites and foot the bill when they couldn’t pay, fell to about $1.3 billion in 2007 from about $1.5 billion in 1999.
Companies navigating the worst economy in generations say they’re strapped, too. Lyondell, part of Rotterdam-based LyondellBasell Industries AF, became one of the 60,837 businesses filing for bankruptcy in the U.S. last year, a 40 percent jump from 2008, according to the American Bankruptcy Institute.
Investors Suffer
Bankruptcy has an advantage for companies with liabilities: It can clear a firm of legal claims, which companies argue can extend to toxic-removal costs.
Investors suffer in any bankruptcy. Shareholders can be wiped out, while bondholders and hedge funds trading in a company’s debt are at the mercy of the bankruptcy judge.
If a company has to pay the billions the U.S. seeks for cleanups, its debt investors can end up getting pennies on the dollar. If the decision goes the other way, the costs can fall on taxpayers.
“It’s a no-win situation,” says Evan D. Flaschen, a bankruptcy lawyer at Bracewell & Giuliani LLP, who isn’t involved in cases mentioned in this story.
“If the debtor can walk, the toxins keep boiling, often getting worse with time. If the debtor has to pay billions for a cleanup, they might go out of business, losing thousands of jobs. Pick your poison.”
Money From Stone
No one has found a solution.
“Congress should have created a priority for this kind of liability,” says Joel Gross, a former chief of environmental enforcement at the U.S. Department of Justice who now practices bankruptcy law at Arnold & Porter LLP in Washington. “You can’t get money from a stone.”
At least $13.2 billion in environmental costs were at stake at the end of February in just four cases in U.S. Bankruptcy Court in lower Manhattan: Lyondell, fellow chemical makers Chemtura Corp. and Tronox Inc., and General Motors Co.
These companies, sometimes along with others, are responsible for more than 200 sites polluted during the past century, according to EPA documents.
The companies say their bankruptcy filings entitled them to steer clear of cleanup costs at sites where a corporate predecessor or related company did the polluting.
Nobody Wins
Firms in Chapter 11 that can’t cover environmental claims may end up liquidating, firing employees and hurting bondholders and other investors.
Natasha Labovitz, a lawyer with Kirkland & Ellis LLP in New York who represents Chemtura, says uncertainty about the company’s environmental costs is a barricade to reorganizing.
“The U.S. has incentive to make as big a claim as it can; there will be no chance to broaden it later,” she says. “The numbers may come in far lower.”
Middlebury, Connecticut-based Chemtura, which filed for bankruptcy in March 2009, is trying to avoid cleanup costs for 197 sites, according to EPA claims. Among them is the Gowanus Canal, a 1.8-mile (2.9-kilometer) stretch of brackish tidal water that extends from New York Harbor into Brooklyn.
The U.S. Justice Department, on behalf of the EPA, has identified polychlorinated biphenyls (PCBs), pesticides, metals and other toxins in the canal. The issue is being decided by a U.S. district judge after the company lost a fight with the government in which it sought to keep the decision in the hands of a federal bankruptcy judge.
‘Just Not Enough’
Lyondell came to a settlement behind closed doors and set aside $250 million to cover all of its environmental costs, according to a March 1 announcement. The EPA had been trying to get it to pay $5 billion.
“It’s just not enough,” says Spoelstra, who heads the environmental group Kalamazoo River Watershed Council.
He says there’s a chance he’ll never see the PCBs cleaned up and that the toxins in the river and its banks will seep through groundwater into the local aquifer. PCBs, banned by the EPA since 1976, have been found to cause cancer in animal studies. They penetrate skin, build up in the food chain and are difficult to degrade, according to the federal Agency for Toxic Substances and Disease Registry.
“There’s a cost to human health,” Spoelstra says.
“This settlement balances the priorities of environmental law with bankruptcy law,” said David Harpole, a Lyondell spokesman. “The formation and funding of the environmental trust provides a fair and equitable resolution of claims against these assets in Chapter 11. It provides funding for the remediation of these affected properties that would not otherwise exist.”
In another matter, parent LyondellBasell may face a U.S. bribery probe after telling prosecutors about a potentially improper payment linked to a project in Kazakhstan, according to four people with knowledge of the matter. LyondellBasell told the U.S. Justice Department it uncovered conduct that raised “compliance issues” under the U.S. Foreign Corrupt Practices Act, according to a March 30 court filing in Manhattan. A review of international holdings by a management team installed after the parent company’s bankruptcy triggered the disclosure, Harpole said.
Carp Corpses
Kalamazoo emerged as an environmental flash point more than half a century ago. In 1953, Life magazine published “Four acres of carp corpses on the Kalamazoo,” a photo that showed a massive fish kill traced to paper mill emissions.
The EPA singled out Lyondell to shoulder much of the cleanup cost after finding that a predecessor to its Millennium Holdings LLC unit dumped the PCBs from a paper-recycling business. Millennium and Georgia-Pacific LLC signed a consent order with the EPA, agreeing to restore a portion of the river.
“Kalamazoo was Celery City,” Spoelstra says. “Then it was Paper City. I don’t know what we are nowadays. The poster child for PCBs?”
Daniel Esty, a professor of environmental law at Yale University who advised President Barack Obama’s campaign on environmental issues, says some companies may file for bankruptcy to avoid cleanups. W.R. Grace & Co., the Columbia, Maryland-based specialty chemicals and construction materials company that filed for bankruptcy in 2001, said in its 2009 reorganization plan that a fight over the size of asbestos liabilities delayed its efforts to reorganize.
‘Moral Hazard’
“There’s a risk of moral hazard if companies can get out of responsibilities too easily,” Esty says, adding that he sees just two solutions: The EPA has to get tougher or Congress needs to resolve the issue.
“As a society, we lose when bankruptcy wipes the slate clean for the company,” he says.
Today, companies, governments and investors are wrestling over an even smaller pie in bankruptcies than they had before the credit crisis that began in 2007. Moody’s Investors Service says $700 billion of debt issued by firms with non-investment grade ratings will mature from 2012 to 2014.
The EPA collects just 23 percent of the amount a bankrupt company owes for a cleanup compared with 94 percent for a nonbankrupt firm, spokeswoman Deb Berlin says. Bankruptcies also make it difficult for the agency to settle with healthy companies at sites with multiple polluters.
More Aggressive
Esty says the Obama administration is becoming more aggressive in going after polluters. The Justice Department’s Environment and Natural Resources Division has increased the hours that attorneys work on bankruptcies with environmental issues, spokesman Andrew Ames says.
He cites the biggest recovery the EPA has ever gotten in a bankruptcy, from mining company Asarco LLC. In December, Grupo Mexico SAB, which owns Asarco, agreed to pay $1.79 billion for cleanup costs at 80 sites in the U.S.
Lyondell’s alleged Kalamazoo River pollution started with Allied Paper Inc., which dumped PCBs into the water from 1954 to 1985, according to EPA claims. Allied is now defunct.
SmithCorona Marchant Inc., a typewriter maker that no longer exists, bought Allied in 1967. Hanson Plc, a British building-materials company, acquired SmithCorona Marchant in the 1980s before splitting itself into four firms. One of Hanson’s 1996 spinoffs was Millennium Chemicals. Lyondell acquired Millennium Chemicals, which is related to Millennium Holdings, in a 2004 stock swap.
Stuck With Bill
If Lyondell had to pay the $5 billion the U.S. sought, the company’s creditors, claiming $23 billion, would have had their recoveries cut by almost 20 percent. As it stands, unsecured creditors will get just 16.8 cents on the dollar, according to Lyondell’s March 8, 2010, reorganization outline.
Because Lyondell settled and avoided further cleanup costs, Georgia-Pacific may be stuck with a larger bill. Georgia- Pacific spokeswoman Gail Smith says her company shouldn’t have to pay the entire cost.
“Lyondell should not be able to avoid liability for the Kalamazoo cleanup through bankruptcy,” she says.
Companies in bankruptcy can argue that environmental liabilities are just like other claims -- and that they can ditch them to get a fresh start.
“There’s a basic tension between environmental law -- with the principle that the polluter should pay, no matter how long ago it was -- and a belief in the bankruptcy code that there is a clean break with the past,” says Stephen Lubben, a bankruptcy law professor at Seton Hall University School of Law in Newark, New Jersey.
‘Keep Coming Back’
Subsidiaries, spinoffs and mergers complicate the issue by creating uncertainty over who the polluter is. Labovitz, the lawyer representing Chemtura, says her client is one of many companies with a long history at locations such as the Gowanus Canal. Now that Lyondell has settled, there’s still no clear law that resolves the conflict Lubben cites.
Labovitz says the issue is ripe for a Supreme Court ruling but nobody wants to be the guinea pig for a legal journey that could tie the company up in bankruptcy proceedings for years.
“Though historically these issues have been resolved by settling, they keep coming back,” she says. “It’s a lot of legal expense and distraction.”
For communities living with pollution, just figuring out who to sue can be a challenge. In 2003, the Mount Canaan Full Gospel Church Inc. in Birmingham, Alabama, began building a school on its property. During the digging, an oily smell erupted from the ground.
Complicated History
The church first sued Kerr-McGee Corp., Allied Energy Corp. and Colonial Pipeline Co. in U.S. District Court in Jefferson County, Alabama, in April 2006. It sought property damages, blaming toxins from a nearby petroleum facility.
In June of that year, Anadarko Petroleum Corp. acquired KerrMcGee, which in March had split off a new company called Tronox. Three years later, in January 2009, Tronox filed for bankruptcy. The church’s case moved to U.S. Bankruptcy Court in New York, where it met another logjam.
Tronox blamed Kerr-McGee and Anadarko for the pollution. It sued both of them in May 2009, alleging that Kerr-McGee fraudulently hid its role and had gone so far as to classify some properties as “secret sites.”
The U.S. intervened in May 2009, claiming in court documents that it was the largest creditor of Tronox and was owed what could be recovered from the hundreds of millions in environmental costs that Kerr-McGee had tried to avoid.
Day in Court
Court papers filed in Tronox’s bankruptcy list EPA claims for costs at 12 named hazardous sites, 270 labs or chemical manufacturing sites and more than 600 mining-related sites.
“We conduct our business with the utmost integrity and we’re not responsible for Tronox’s financial condition,” Anadarko spokesman John Christiansen says.
Four years later, the church still hasn’t had its day in court -- which is now almost 1,000 miles away. Lanny Vines, a lawyer for the church at Lanny Vines & Associates LLC in Birmingham, didn’t return calls for comment.
For General Motors, which reorganized its most profitable businesses and partially exited bankruptcy in July, the fate of toxic liabilities is up in the air. As a part of its Chapter 11 filing, GM left unattractive assets to be liquidated, including two units it created in the 1980s to hold environmental liabilities.
GM Units
In October, those companies entered bankruptcy, with dozens of claims against them and scant money for a cleanup. The two GM units still in bankruptcy owe about $1.2 billion in cleanup costs for 52 locations, EPA documents show.
One of the sites is a former waste-oil refining operation in Dearborn, Michigan, where the automaker disposed of hazardous substances in the 1980s, according to the EPA. The agency found PCBs, lead, arsenic, chromium, cadmium and barium at the facility. Dearborn Refining Co., which ran the business from the 1940s to 2005, failed to pay taxes, making the city of Dearborn the owner.
Robert McCann, a spokesman for the Michigan Department of Environmental Quality, says he doesn’t know whether the GM divisions that remain in bankruptcy will cover their debts. The state hasn’t even completed studies to determine the extent of pollution.
If the bankrupt units and the Superfund can’t pay, McCann says Michigan will be stuck with a gigantic bill it has no way to cover.
“As unsecured creditors, claimants have a legal path to have their claims satisfied on a pro rata basis with the proceeds” from the company’s bankruptcy assets sale, said Greg Martin, a GM spokesman. He said that if the company had been liquidated, unsecured creditors would have received nothing.
Health Risks
The state cleanup fund, which was unable to raise money through an attempted bond issue in 2008, once had $1 billion. It ran out of money in early 2009.
“Our last few dollars are being spent shutting down cleanup processes we can’t afford to finish,” McCann says.
As states and taxpayers wonder how many hazardous sites could be thrown into their laps by rising bankruptcies, no one has even begun to determine the long-term health risks of the pollution, Spoelstra says.
Infertility, lower I.Q. scores, stillborn babies and immune system complications are caused by one of Chemtura’s products, according to 18 scientists, doctors and others who filed court documents in March as part of a public-interest group seeking $9 billion. Chemtura’s bankruptcy judge, Robert Gerber, dismissed the claim, saying the group didn’t follow proper procedures for bringing its claim.
Kalamazoo Vice Mayor Hannah McKinney says the city and about a quarter million people served by a local aquifer fear their tap water may be at risk from carcinogenic PCBs now that Lyondell’s settlement has become final.
“It’s the most-maddening thing,” McKinney says. “It’s the community that’s going to lose.”
Beyond Kalamazoo, towns and cities wrestling with environmental cleanups and growing bankruptcies may find themselves stuck in the same toxic quagmire.
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