Bankruptcy in the City of Detroit
The June 2013 bankruptcy of Detroit, Michigan, was, at the time, the largest municipal bankruptcy in American history. Detroit had struggled for years with a weakening tax base, high unemployment, a heavy debt load, and increasing retiree costs. These financial strains led to cuts in basic public services, declines in population, and significant urban blight. The State of Michigan appointed an emergency manager, Kevyn Orr, to lead the city though the restructuring process. In March 2014, Orr and his team put forth a restructuring plan to the city's creditors that provided for needed reinvestment in city services, but low recoveries for unsecured creditors. The city's plan also proposed that the Detroit Art Collection be transferred to a trust funded by philanthropists, with the proceeds accruing solely to retirees rather than to all creditors. Orr and his team must now find consensus on a plan that meets the needs of Detroit and is acceptable to its creditors.
Keywords: Chapter 9; chapter 11; Restructuring; Financial Liquidity; Insolvency and Bankruptcy; City; Government Administration; Public Sector; Financial Crisis; Financial Management; Failure; Labor Unions; Urban Development; Public Administration Industry; Michigan; Detroit;
Citation:
Gilson, Stuart, Kristin Mugford, and Annelena Lobb. "Bankruptcy in the City of Detroit." Harvard Business School Case 215-070, April 2015. (Revised January 2020.) View Details