Detroit's emergency manager says he's 'all in' for the 'Olympics of restructuring'

Posted on March 15, 2013

Washington, D.C., bankruptcy attorney Kevyn Orr, who starts his new job as Detroit’s emergency financial manager March 25, said he is “all in” for “the Olympics of restructuring.”

Orr, who brings expertise from his work at Cleveland-based Jones Day, one of the world’s largest law firms, also has extensive experience with bankruptcy and said Thursday he hopes to avoid that route.

“Don’t make me go to the bankruptcy court. You won’t enjoy it,” Orr said after being introduced by Gov. Rick Snyder as his choice for emergency manager.

“Bankruptcy’s been my stock and trade. I’m very comfortable in bankruptcy courts,” said Orr, who has resigned from the international Jones Day firm ahead of his new Detroit appointment. “You can do everything by consent. … When I say consensual, I mean … let’s get at it and work together because we can resolve this.”

The state’s three-member Local Emergency Financial Assistance Loan Board approved Orr’s appointment and contract at a meeting Thursday in Lansing immediately following Snyder’s announcement of Orr at a news conference at Cadillac Place in Detroit.

His appointment makes Detroit the largest city in the country to fall under state oversight.

Orr, 54, a 1983 University of Michigan Law School graduate, was part of the Jones Day legal team that guided Chrysler LLC through its 2009 bankruptcy.

Responsible for developing a written financial plan for Detroit, Orr said he and Mayor Dave Bing discussed having “a true partnership” as he works to right the city’s fiscal woes. He called the task ahead of him “the Olympics of restructuring.”

Orr, who will earn $275,000 annually, said he believes he can get the job done in 18 months.

The emergency manager would be responsible for overseeing all of the city’s spending. Bing and the City Council would keep their jobs, but the manager would decide all financial matters. Only the manager would have the power to authorize the city to take a Chapter 9 bankruptcy route.

Orr said he hopes to help the city avoid a municipal bankruptcy. “I don’t want to pull that cudgel out unless I have to,” he said.

Orr, who represented Chrysler during its successful restructuring, will control all spending, including renegotiating labor contracts, selling off assets and even suspending elected officials’ salaries.

“The argument Kevyn made is creditors are in a worse position in a Chapter 9 so that they would be better off negotiating an outcome at the city level,” state Treasurer Andy Dillon said.

“You meet with all these folks now and you have a consensual arrangement about how we’re going to recast the city’s balance sheet to go forward. If there’s a lot of obstruction and inability to get people to the table, (bankruptcy) becomes an option. But I don’t think that it’s necessary.”

Jones Day, hired to be the city’s restructuring counsel, is regarded as expert in restructuring and insolvency, with and without court supervision, according to James McTevia, president of a Michigan-based firm that specializes in turnaround management.

“I am sure their goal is to keep Detroit out of the bankruptcy court,” he said.

Spencer Overton, a law professor at George Washington University in Washington and friend of Orr’s, said in an interview with Bloomberg, “When I heard his name, I thought, ‘This is a great break for Detroit. Kevyn Orr brings so much to the table.'”

Orr will be a hands-on manager who won’t just rely on advisers, said Overton, a Detroit native. His wife’s parents still live in the city.

Chrysler, which when it entered court protection in April 2009 was the largest industrial bankruptcy ever, took 41 days to exit the process amid predictions it might take years.

“He quickly got attuned to the political dynamics of the Chrysler bankruptcy, and you will recall there were many,” said John Bozzella, who was the company’s vice president of external affairs. “He’ll need those kind of skills. He understood the political sensitivity well.”

Orr said his first task is to have further discussions with Bing, Snyder’s staff and others, and examine the city’s financial data.

“The first thing is to look at the data, and that will drive my decisions, and with my team, prioritizing what needs to be done,” Orr said.

Bing said there is “no doubt in my mind” that he and Orr will be able to work together to solve the city’s financial crisis. “The city deserves that,” he said. He added that he’s glad that “now I have teammates.”

While Orr said while he’ll look for consensus, he’ll also do what needs to be done. When some Chrysler creditors balked at cutting the company’s bank debt to $2.25 billion from $6.9 billion, his team took the automaker’s case to bankruptcy court instead.

Snyder said he looked for candidates with strong interpersonal skills; technical skills in business, the law, finances and restructuring; and someone who is a “decision-maker.”

The first-term Republican governor said he is “very pleased we got someone of this caliber” in the role of emergency financial manager.

“He has very strong ties to Michigan, and he’s had a very successful career in restructuring and bankruptcy work,” Snyder said.

Orr said that 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.”

Orr said he relished the challenge, even though it meant giving up his successful job with the law firm and relocating 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.

Detroit may be Orr’s biggest challenge. The city has lost more than a quarter of its residents since 2000. Those who remain endure unreliable buses, inadequate police and fire protection and broken street lights.

Orr said he’s a lifelong Democrat who’s prepared for controversy as protests of his appointment took place outside the Detroit building where he was introduced.

“In my business, you’re sort of the undertaker that walks up to the front door,” Orr said. “You might say I’ve been inoculated against the concept that people aren’t exactly happy to see me come along.”

Alan Fein, a lawyer in Miami, described Orr, a former colleague, as well-liked, with a charming demeanor. He said Orr is “an honest broker, and fair to the core.”

“He’s a great facilitator, he’s a smart guy,” Fein said. “He’s somebody who walks in the room and you want to know him and like him.”

Fein said Orr and his wife, Donna Maria Neale, have young children and a cat. Orr said Donna is a surgeon. The family has a house in the Washington suburb of Chevy Chase, Md.

Before joining Jones Day, Orr held several U.S. government jobs, including director of the Justice Department unit that oversees bankruptcy cases and trustees, according to Jones Day.

“I believe that both the EFM and the governor genuinely want the voices of the mayor, city council and citizens to be present during this process, and I won’t relent in a continued effort to represent Detroiters,” said City Council Pro tem Gary Brown in a news release.

On Tuesday, Detroit City Council representatives argued in Lansing before a deputy state treasurer against the appointment of an EFM, contending that the state’s Financial Review Team report stating that the city is in a financial emergency with “no satisfactory plan” to address it exaggerates the city’s total debt of nearly $15 billion.

They also said many aspects of the existing consent agreement between the state and city are “in progress” and that city officials project a $6.5-million cash surplus at the end of the fiscal year, not a $114 million shortfall that was previously forecasted.

In addition to the billions in debt, the review team also determined that the city had a $327 million budget deficit last fiscal year and a cumulative cash deficit that’s expected to eclipse $100 million by June 30, the end of the current fiscal year.

The six-member review team’s report also said last fiscal year’s deficit would have been $937 million had the city not issued long-term debt to pay its bills.

“We’ve not been able to give the citizens who pay the taxes the services they require,” Bing said at today’s news conference.

Bing, who didn’t join the City Council in filing an appeal, announced Jones Day would be the city’s restructuring counsel earlier this week.

The City Council hasn’t yet approved hiring Jones Day, and he has at least some instant opposition.

Michigan Democratic Party Chairman Lon Johnson said Thursday in a news release: “Kevyn Orr may have an impeccable corporate background, but if Rick Snyder wants him to run Detroit, he should move to Detroit and run for mayor.”

Kirk Pinho, Crain’s Detroit Business.