- Jones Day lawyers David Heiman (front left) and Heather Lennox leave court at the start of Detroit’s bankruptcy case in July 2013.
- Bill Pugliano/Getty Images
As Detroit’s historic bankruptcy comes to an end, citizens and creditors can thank a humble barbershop for helping the city wrap up the case.
With Detroit and its creditors deadlocked and Motor City’s fate hanging in the balance, the city and a big bond insurer hammered out a crucial creditor settlement over haircuts at a downtown barbershop.
The barbershop deal is just one example of the unorthodox ways Detroit’s $18 billion restructuring came together. The plan, which a bankruptcy judge blessed Friday, cuts Detroit’s debts by $7 billion. It also promises private and state funds to cover pension shortfalls and pledges to reinvest $1.7 billion in shoring up lacking city services, from garbage pickups to working streetlights.
At the heart of the case were David Heiman, Heather Lennox and Bruce Bennett, who led a team of more than 100 Jones Day lawyers responsible for shepherding the city through bankruptcy.
The restructuring, resolved in what Mr. Heiman calls a “lightning-fast” 16 months, depended on securing the support—and sacrifices—of Detroit’s creditors, a diverse body including Wall Street financial institutions as well as city workers and pensioners. Advisers won that support in piecemeal settlements reached after months of negotiation and mediation, and Mr. Heiman says the barbershop deal “started the ball rolling” on those deals.
Bondholders and the city had been fighting over how almost $400 million in unlimited tax general obligation bond debt would be handled in the restructuring. Like many other disputes in the bankruptcy, the fight was sent to mediation, this session overseen by U.S. District Judge Gerald Rosen and U.S. Bankruptcy Judge Elizabeth Perris.
One day early this year, when talks were at an impasse, Judge Rosen announced it was time for his haircut. Mr. Heiman and Tim Coleman, who was advising a large bond insurer, joined him.
The men stepped out of the federal courthouse in Detroit to walk several blocks to Judge Rosen’s regular barbershop, a no-frills, two-chair hideaway on the ninth floor of a downtown building.
The barber was told the men would be having a confidential discussion. Mr. Coleman says he was “confident” that the barber wouldn’t tell anyone they had been there, let alone the nature of their conversation, given his longstanding relationship with the judge, who declined comment.
So as the barber clipped and trimmed, Mr. Heiman and Mr. Coleman were free to build the foundation of a deal that eventually offered the bondholders 74 cents for every dollar they were owed.
How long did it take the men to agree? “Three haircuts,” says Mr. Coleman, who leads Blackstone’s restructuring group.
“It was not the best haircut I ever got, but it was a good haircut on the deal,” adds Mr. Heiman. (In deal parlance, taking a haircut means recovering less than what you’re owed.)
According to Mr. Heiman, the settlement, announced in April, was a crucial moment in the case because it showed Detroit’s other creditors that the city was “not only capable but willing to settle matters instead of litigating.”
Other settlements followed.
“It seemed to open the door for many parties deciding now’s the time,” says Mr. Coleman.
Read more about the Detroit Chapter 9 case, and Jones Day’s role as the city’s lead bankruptcy counsel, in Daily Bankruptcy Review .
Write to Jacqueline Palank at jacqueline.palank@wsj.com. Follow her on Twitter at @PalankJ.
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