“The citizens of Detroit need and deserve a clear road out of the cycle of ever-decreasing services,” Snyder wrote. “The city’s creditors, as well as its many dedicated public servants, deserve to know what promises the city can and will keep. The only way to do those things is to radically restructure the city and allow it to reinvent itself without the burden of impossible obligations.”
A turnaround specialist, Orr represented automaker Chrysler LLC during its successful restructuring. He issued a warning early on in his 18-month tenure in Detroit that bankruptcy was a road he preferred to avoid.
He laid out his plans in June meetings with debt holders, in which his team warned there was a 50-50 chance of a bankruptcy filing. Some creditors were asked to take about 10 cents on the dollar of what the city owed them. Underfunded pension claims would have received less than the 10 cents on the dollar under that plan.
Orr’s team of financial experts said that proposal was Detroit’s one shot to permanently fix its fiscal problems. The team said Detroit was defaulting on about $2.5 billion in unsecured debt to “conserve cash” for police, fire and other services.
“Despite Mr. Orr’s best efforts, he has been unable to reach a restructuring plan with the city’s creditors,” the governor wrote. “I therefore agree that the only feasible path to a stable and solid Detroit is to file for bankruptcy protection.”
Detroit’s budget deficit is believed to be more than $380 million. Orr has said long-term debt was more than $14 billion and could be between $17 billion and $20 billion.
Orr’s decision to file now may have been influenced by lawsuits filed by some city workers and retirement systems to prevent Snyder from approving a bankruptcy request from the emergency manager, said Detroit-area turnaround specialist James McTevia.