Bankruptcy expert named Detroit emergency manager
Date posted: March 14, 2013
DETROIT (AP) — A bankruptcy expert who represented automaker Chrysler LLC during its successful restructuring has been chosen to steer Detroit out of its financial abyss. The distressed city, which was once one of the nation’s most prosperous manufacturing centers, is now the largest U.S. city to have its finances placed under state control.
Gov. Rick Snyder announced Thursday that he had chosen Kevyn Orr, a partner in the Cleveland-based law and restructuring Jones Day firm, as Detroit’s emergency manager. He officially will be hired by Michigan’s Emergency Loan Board, which had scheduled a meeting for 3 p.m. EDT Thursday.
During a news conference Thursday, Orr called Detroit a “storied American city.”
“We can rise from the ashes,” Orr said. “This is a beautiful city and a wonderful state that gave me my start. I feel compelled to do this job.”
Detroit, which at one time was the symbol of American progress and held great political power thanks to the auto industry, has lost a quarter-million people during the last decade and remains saddled with a $327 million budget deficit and more than $14 billion in long-term debt. It has been making ends meet on a month-to-month basis with the help of bond money held in a state escrow account. The city also has instituted mandatory unpaid days off for many city workers.
Orr said when he met with Snyder, he called the manager job “an unsung hero task.” He asked the governor why he would bother to help the city, and Snyder’s response was: “Kevyn, it’s the right thing to do and it’s the right time to do it.”
The new manager said he relished the challenge, even though it meant up giving up his successful job with the law firm to take it.
“It’s not that I’m altruistic, but if we can do this, I will have participated in one of the greatest turnarounds in the history of this country,” Orr said.
A state-appointed review team previously determined that because of Detroit’s cash deficit, the city would have had to either increase revenues or decrease expenditures — or both — by about $15 million per month for three months starting in January to “remain financially viable.”
Those troubles, along with underfunded city services such as police and fire departments and the absence of legitimate turnaround plans from Mayor Dave Bing and the City Council, ultimately forced Snyder to appoint an emergency manager.
“The bottom line here is that we must stop fighting each other,” Bing said Thursday. “We must start to work together. I’m happy that now I’ve got teammates, I’ve got partners that can help me do things that need to be done in our city.”
Bing had said an emergency manager was inevitable for Detroit after Snyder agreed with the review team that the city had no viable plan to address its fiscal crisis. The Detroit City Council lost an appeal Tuesday, opening the door for Orr’s appointment.
Bing did not join the council in its appeal, but said a restructuring plan followed under a nearly year-old consent deal with the state is in place to fix the city’s short-term cash problems and long-term debt.
Snyder didn’t agree.
Orr’s hiring followed a release by Bing that Detroit selected Jones Day as the city’s restructuring counsel. The international firm that has more than 2,400 attorneys on five continents has relevant experience in major disciplines needed to assist Detroit in implementing a successful restructuring strategy, according to a release from Bing’s office.
“The experience of the Jones Day law firm will be a valuable asset as we proceed with our plan for restructuring the city of Detroit,” Bing said.
Naming one of the firm’s experts as Detroit’s emergency manager makes sense, said James McTevia, president of a Michigan-based firm that specializes in turnaround management.
“The firm is well-regarded as experts in restructuring and insolvency, both with and without court supervision,” McTevia said. “I have worked with the firm many times over my 50 years as a bankruptcy receiver/trustee and also out of court. I am sure their goal is to keep Detroit out of the bankruptcy court.”
With Orr’s appointment, Detroit became the sixth Michigan city placed under state oversight. Pontiac, Flint, Ecorse, Allen Park and Benton Harbor already have managers, as do public school districts in Detroit, Highland Park and Muskegon Heights.
Orr’s hiring also is the latest in a string of embarrassing setbacks to befall Detroit in recent years.
Explicit text messages made public in 2008 revealed the tawdry affairs and other shenanigans by the city’s then-Mayor Kwame Kilpatrick, leading to criminal charges and eventually prison time for him. On Monday, Kilpatrick also was convicted on 24 federal corruption charges, capping a five-month trial that exposed a brazen pay-to-play culture during his mayoral tenure and characterized the son of former U.S. Congresswoman Carolyn Cheeks Kilpatrick as an unscrupulous politician who took kickbacks, rigged contracts and lived far beyond his means.
According to Jones Day’s website, Orr has practiced law in business restructuring, financial institution regulation and commercial litigation since 1984. He also has served as the chief government legal officer of a failed financial institution and a special master to oversee the operations of a real estate development firm. The names of the financial institution and development firm were not listed.
Orr also has represented health care financier National Century Financial Enterprises in its bankruptcy. The 1983 University of Michigan Law School graduate is a member of the American Bankruptcy Institute and serves on its law review advisory board.