UPDATE: Detroit Files for Largest Municipal Bankruptcy in U.S. History

UPDATE: Well, it was only a matter of time. Detroit has filed for bankruptcy.

From the Associated Press:

Detroit on Thursday became the largest city in U.S. history to file for bankruptcy, as the state-appointed emergency manager filed for Chapter 9 protection.

Kevyn Orr, a bankruptcy expert, was hired by the state in March to lead Detroit out of a fiscal free-fall and made the filing Thursday in federal bankruptcy court.

The emergency manager's efforts to restructure the city's finances fell apart after two municipal pension funds moved to protect retiree benefits from restructuring by suing Orr.

"Despite Mr. Orr's best efforts, he has been unable to reach a restructuring plan with the city's creditors," Republican Gov. Rick Snyder said in a letter. "I therefore agree that the only feasible path to a stable and solid Detroit is to file for bankruptcy protection."

"We must face fact that [Detroit] cannot & is not paying its debts," he added, "it "is insolvent."

Ryan Williams, a former spokesman for Mitt Romney's failed 2012 campaign, passive aggressively weighed in on the matter.

Detroit -- once the epicenter of the American auto industry -- may file for federal bankruptcy as early as Friday morning, the Free Press reports.

“The filing would begin a 30- to 90-day period that will determine whether the city is eligible for Chapter 9 protection and define how many claimants might compete for the limited settlement resources that Detroit has to offer,” the report notes.

“The bankruptcy petition would seek protection from creditors and unions who are renegotiating $18.5 billion in debt and other liabilities,” it adds.

The decision to seek bankruptcy protection comes from city emergency manager Kevyn Orr.

He released a plan in June to restructure the city’s debt -- leaving creditors with far less than they are owed -- but those negotiations hit an “impasse” when two municipal pension funds moved to sue Orr.

The city’s two pension funds filed suit this week in state court to keep the emergency manager from including retiree benefits in the bankruptcy restructuring.

Currently, both pension funds have claims to roughly “$9.2 billion in unfunded pension and retiree health care liabilities,” the report notes.

It continues:

Ambac Assurance Guaranty, which insures some of the city’s general obligation bonds, has also objected to Orr's plan to treat those bonds as “unsecured,” meaning they’re not tied directly to a revenue stream and would receive pennies on the dollar of their value. Ambac, and other creditors, have threatened to file suit.

Sources agree that Orr’s deal with creditors, widely reported to be Bank of America Corp. and UBS AG, to pay a $344-million swap with a $255-million debtor-in-possession loan, is instrumental in the timing of the potential bankruptcy filing.

The deal gives the city access to $11 million a month in casino tax revenues that Orr has said is key to maintaining city services while negotiations, in or out of bankruptcy court, take their course with other creditors and unions.

Should the city file on Friday, it would be the largest municipal bankruptcy in the history of the United States.

“Because of the stakes involved, and the impact on residents statewide, as well as 30,000 current and retired city workers and Detroit’s ability to stay in business, the case could be precedent setting in the federal judiciary,” the report adds.

The city’s debt and liabilities, according to Orr, could be as much as $20 billion.

“Orr’s spokesman Bill Nowling would not confirm today that the filing is imminent,” the Free Press notes.

Still, the spokesman said, “Pension boards, insurers, it’s clear that if you’re suing us, your response is ‘no.’ We still have other creditors we continue to have meetings with, other stakeholders who are trying to find a solution here, because they recognize that, at the end of the day, we have to have a city that can provide basic services to its 700,000 residents.”