DETROIT — The city of Detroit reached a deal in bankruptcy over $388 million in bonds, mediators announced Wednesday, a significant agreement that could influence other creditors to try to get a settlement.
Detroit will pay 74 cents for each dollar. Tax revenue that won't be used to pay the balance instead will go to a fund to help low-income retirees, mediators said in a statement.
The deal still needs the blessing of Judge Steven Rhodes and is only a small part of the $18 billion bankruptcy case, the largest by a local government in U.S. history.
"I implore all parties, specifically our labor parties: Please come in and do deals," Detroit emergency manager Kevyn Orr said on CNBC after the agreement was announced. "I do not want to do a cram-down in this case."
Orr, appointed by the state last year to run the city, was referring to a bankruptcy term that gives a judge sweeping power to settle disputes.
Detroit hopes to exit bankruptcy by October, but the city's plan first faces a series of court hearings in summer. The most divisive issue: cuts to pensions.
The city is proposing a 6 percent cut for retired police officers and firefighters, and a 26 percent cut for other retirees. The difference is tied to the health of the two pension funds.
The size of those cuts assumes that foundations, the state of Michigan and other philanthropists contribute $816 million to help pensioners and prevent the sale of city-owned art. If retirees and city employees reject the cuts, the outside money vanishes and pensions would be slashed even more.
Anthony Sabino, a bankruptcy expert and St. John's University law professor, said the bond deal is a "good sign of progress" in the case.
"We call that taking a haircut," he said. "That's fairly typical for bondholders in a corporate bankruptcy. There usually is a restatement of terms, and the bondholders take some kind of reduction."