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Business Insights From Conway MacKenzie
June 15, 2016

Detroit Post Bankruptcy: It took a village to save a city

The following post was written by Glenn Kushiner.

Although the long-term success of the City of Detroit restructuring/bankruptcy is yet to be determined, the current signs (significantly reduced debt load, balanced budget and surplus creation, finance function organizational restructuring, population stabilization, etc.) indicate the City is on the right path. One of the biggest reasons for the current trajectory was the willingness of all interested parties to come together and accept a shared sacrifice.

In Detroit’s bankruptcy, the Mayor and Emergency Manager were able to craft and negotiate a comprehensive plan wherein all interested parties contributed. Retirees and active employees gave through pension and healthcare benefit reductions. Bondholders contributed through reduced returns on investments. Foundations and community groups contributed financially through the Grand Bargain and operationally through blight reduction and community support projects. The suburbs contributed through the creation of the Great Lakes Water Authority. The State contributed financially, legislatively, and operationally. Businesses contributed financially via direct donations, increased development, and operationally through in-kind service provisions. Lastly, the City itself contributed with significant headcount reductions and operational cost cutting prior to bankruptcy.

In my 15-plus years in the restructuring industry, my experience is that the really tough, distressed situations resulted in a successful restructuring/turnaround most often when there was shared sacrifice by all of the interested parties. The U.S. Federal Government has been given the credit (or has taken the credit) for “saving the auto industry.” The U.S. Federal Government, no question, played a vital role, but so did many others, including the automotive unions that agreed to a 2-tier wage system, Ford which didn’t need Federal Government assistance, but stood by, and supported U.S. Federal Government assistance for its biggest competitors, and the Canadian Government which also financially contributed billions.

Hopefully, the individuals working and dealing with significant distressed situations like Puerto Rico or the many companies in the energy sector keep this in mind when trying to solve complex financial problems – now and in the future.