For Detroit’s bondholders, hope was fading fast—after the city went bankrupt, it was suggested that it could cut bond recoveries to as little as 15 cents on the dollar.
But Detroit agreed yesterday to pay bondholders as much as 74% of what they are owed, in a deal that means as much to bondholders as it does to the city’s retired workers.
That’s because the remaining 26% of bond payments will go straight into the pension system—a cash infusion that will total $100 million.
The deal is part of an effort to keep the city’s pensioners above the poverty line. But they will still face sharp cuts in their benefits, according to Bloomberg:
Under a plan submitted to the court in February and revised last month, pensions for police and firefighters would be cut about 6 percent if they vote for the plan, 14 percent if they don’t. Pensions for other city workers would be cut by about 26 percent if they vote yes and by about one-third if they don’t.
About 20 percent of current pensioners would be pushed below the poverty line by the plan, according to a committee of retirees that has been negotiating with the city.
The deal still requires the approval of Judge Steven Rhodes of the US Bankruptcy Court for the Eastern District of Michigan.
Photo Credit: University of Michigan via Flickr Creative Commons License