UPDATE 3-Detroit retirees win seat at table in bankruptcy filing

Fri Aug 2, 2013 10:44pm EDT

By Nick Carey and Joseph Lichterman

DETROIT Aug 2 (Reuters) - In a high-stakes hearing on Friday in Detroit's bankruptcy filing, a judge approved a city plan to form a creditors' committee of retired workers, but gave unions and pension funds that opposed the plan a measure of satisfaction by declaring an independent trustee - and not the city - will select committee members.

Federal bankruptcy Judge Steve Rhodes' ruling on the city's effort to create a new negotiating partner independent of unions and pension funds was a key moment in a three-hour session that packed the largest courtroom in Detroit's downtown federal building. Rhodes also put off setting a date for a hearing on Detroit's eligibility to file for bankruptcy, while Detroit lawyers disclosed an ambitious aim to present a plan for reorganization by the end of 2013.

Detroit, whose course in bankruptcy court is being set by a state-appointed emergency manager, Kevyn Orr, set its target date at least three months earlier than the March 2014 deadline Rhodes previously had proposed.

Outside of court, Orr on Friday also proposed a new healthcare plan for city workers that would save Detroit $12 million annually by raising deductibles and trimming the number of available plans.

The next key step in the largest U.S. municipal bankruptcy case to date will be for the judge to set a trial date on whether Detroit is eligible for a Chapter 9 municipal bankruptcy. To remain in bankruptcy court, Detroit must prove it is insolvent and has negotiated in good faith with creditors owed more than $18 billion, or that there are too many creditors to make negotiating feasible.

Pension funds and unions representing city workers are expected to contest Detroit's eligibility.

An attorney for the city also disclosed Detroit is in regular but pointed dialogue with creditors even while in bankruptcy court. "There are significant differences that we feel will be difficult to breach," said David Heiman, an attorney who represents the city.

CONTENTIOUS COMMITTEE ISSUE

Detroit, a former manufacturing powerhouse and cradle of the U.S. automotive industry and Motown music, has struggled for decades as companies moved or closed, crime surged, and its population dwindled. The city's revenue fell short of spending, while city budgets and borrowing ballooned.

The city now says it can't afford to pay its retired workers the pensions and benefits they were promised. The committee that the trustee will select could help determine how much money and benefits the retirees may lose.

Unions argued the committee should include labor union representatives. They also asked the judge to adjust his proposed timetable for the case to allow the committee to become established and permit negotiation and mediation with the city.

U.S. Trustee Daniel McDermott will form the committee, though Judge Rhodes has the power to reject the committee's composition if it lacks adequate representation.

Brian O'Keefe, an attorney who represents associations of retired Detroit police, firefighters and city employees, said it was important the city not dictate the committee's composition.

"We were objecting to the fact that it seemed like the city wanted to be involved in the structuring of the committee and I think Judge Rhodes made it clear that it really will be up to the U.S. Trustee," said O'Keefe.

PENSION DISPUTE

The judge approved the city's offer to pay costs associated with the retiree committee's work. And Edward McNeil, the lead negotiator for a coalition of 33 of Detroit's 48 labor unions, told Reuters the union expects the city's funding to cover the cost of an independent actuarial study of the city's unfunded pension liability.

Orr, the city's emergency manager, contends the city faces $3.5 billion in unfunded liability, though the city prior to Orr's estimate in June had put the unfunded liability at $644 million for 2011. A larger unfunded liability could increase pressure on retirees and workers to make concessions to help Detroit fix its failed finances.

Estimates of pension valuations vary widely based on a number of factors, including return on investments and 30-year amortization of pension obligations. Rachel Barkley, a municipal credit analyst at Morningstar who studied the way Detroit calculated pensions valuations, said Detroit was within industry norms in its calculations.

"We feel an 8 percent investment return may not be conservative but definitely would be defensible by the city," she said.

BANKRUPTCY TIMELINE

Lawyers for some city unions argued Judge Rhodes' proposed schedule for the eligibility phase - at which the city must prove it belongs in bankruptcy - was too tight and left little time for discovery. Rhodes had proposed an Oct. 23 trial date.

"The whole schedule as a package is fairly aggressive," said Babette Ceccotti, a lawyer for the United Auto Workers, one of the city's unions.

Rhodes did not set a firm date for the eligibility trial and said he would consider concerns about scheduling and set an Aug. 21 date for the next hearing in the case.

During the hearing, Rhodes said he intends to appoint an examiner to review the fairness of fees charged by Detroit's lawyers and other service providers.

He gave the parties seven days to nominate candidates for the job. He also put off any action on a simmering debate over a deal Detroit struck with counterparties to interest-rate swap agreements that would save the city more than $70 million.

Detroit's target of filing a reorganization plan by year-end compares with the March 1 date proposed earlier this week by Rhodes. While the city would "enthusiastically accept" the judge's deadline, Heiman said, it wants to move faster.

"Our view is that time is our enemy," Heiman said. "The facts are not going to change no matter how long we wait. ... So we aim to file a plan by the end of the year."

The target date for Detroit's reorganization plan may prove tough to meet if recent municipal bankruptcies are any guide.

Stockton, California, took nearly a year just to prove its eligibility for Chapter 9 bankruptcy, and San Bernardino, California, is still awaiting a declaration more than a year after filing for protection.

Detroit's bankruptcy has drawn national attention at a time when many cities and states are dealing with budget deficits and pension crises.

St. Louis Federal Reserve President James Bullard, in remarks after speaking at a Boston conference Friday, warned bankruptcy will not be a quick fix.

"Declaring bankruptcy is no panacea," Bullard said. "It is not a solution. It is a mess."

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U.S. ambulance operator Rural/Metro files for bankruptcy

Sun Aug 4, 2013 11:30pm EDT

Aug 4 (Reuters) - Ambulance operator Rural/Metro Corp, owned by private equity firm Warburg Pincus, filed for Chapter 11 bankruptcy with the aim of cutting its debts after it missed an interest payment in July, according to court filings.

The Scottsdale, Arizona-based company also intends to renegotiate unprofitable contracts and free up capital for investments through the bankruptcy process, according to the filings.

The provider of private ambulance and fire protection services declared liabilities and assets each worth more than $500 million.

Rural/Metro reached an agreement with both its senior secured and unsecured debt holders to reduce its debt and interest payments by nearly 50 percent.

Bondholders have also agreed to infuse $135 million in new equity financing once Rural/Metro emerges from Chapter 11, according to a filing.

The company has secured debtor-in-financing (DIP) of $75 million, which would help it continue operations during the bankruptcy process.

"This agreement is good news for Rural/Metro and for the clients and communities we serve. We have a solution that keeps our operations moving forward while cutting our debt in half," Chief Executive Scott Bartos said.

Rural/Metro anticipates completing its restructuring in the fourth quarter of 2013.

In 2011, affiliates of Warburg Pincus bought Rural/Metro for about $438 million in an all-cash deal excluding debt.

The deal was funded by $525 million in new debt financing, with the reminder of the purchase price coming from Warburg's affiliates.

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PRESS DIGEST - Wall Street Journal - Aug 5

Mon Aug 5, 2013 1:12am EDT

Aug 5 (Reuters) - The following are the top stories in the Wall Street Journal. Reuters has not verified these stories and does not vouch for their accuracy.

* JetBlue Airways Corp's plans to add premium seats on some of its planes marks a major shift for the discount carrier, which aims to stay relevant against resurgent full-service behemoths and new ultra low-cost carriers. ()

* Tyson Foods Inc, Hillshire Brands Co and Cargill Inc are due to report quarterly results that will shed light on whether consumers continue to show a preference for cheaper meats like pork and chicken at the expense of beef, which has hit record prices this year. ()

* Ambulance company Rural/Metro Corp filed for Chapter 11 bankruptcy protection on Sunday after striking a deal with lenders to trim its debt load. The Scottsdale, Arizona-based company, the country's largest ambulance operator serving rural communities, reported assets and debts each exceeding $500 million in its bankruptcy petition. ()

* Chinese regulators are scrutinizing two suppliers to Apple Inc and other gadget makers following allegations by environmental groups that plants run by the two companies are pumping large amounts of toxic heavy metals into nearby rivers. Officials are investigating plants owned by Taiwanese companies Foxconn Technology Co Ltd and UniMicron Technology Corp. ()

* Weinstein Co has held discussions with Miramax over a potential deal that would reunite two of the most powerful executives in the independent film world with the studio that made them famous. The talks began several weeks ago with a meeting of Weinstein Co Chief Executive Harvey Weinstein and Miramax Chairman Tom Barrack, said a person close to the negotiations. ()

* The Italian branch of British telecom company Vodafone Group PLC said on Sunday it has sued Telecom Italia SpA for abusing its dominant position in Italy, seeking damages of more than 1 billion euros ($1.33 billion). Vodafone alleged that Telecom Italia "committed a series of abuses between 2008 and 2013 with the intention and effect of impeding growth in competition in the Italian fixed-line market." ()

* On Sunday, there was no sign of a resolution in the blackout of CBS Corp's flagship network on Time Warner Cable Inc's systems in New York, Los Angeles and a few other markets. By Sunday afternoon the two companies couldn't even agree on whether any talks were under way. ()

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Fed's Bullard says Detroit bankruptcy a 'tragedy'

Fri Aug 2, 2013 3:12pm EDT

Aug 2 (Reuters) - St. Louis Federal Reserve President James Bullard said on Friday that "it was a tragedy to see a great American city declare bankruptcy" when Detroit filed in July.

Bullard's comments came after a municipal finance conference in Boston at which he was the keynote speaker.

"Declaring bankruptcy is no panacea," he said, adding that other struggling local governments should avoid it if possible. "It is not a solution. It is a mess."

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DOJ again balks at proposed $19.9 mln severance for AMR's Horton

By Nick Brown

Fri Aug 2, 2013 5:59pm EDT

Aug 2 (Reuters) - The U.S. Department of Justice is taking its third shot at nixing a proposed $19.9 million severance package for American Airlines Chief Executive Tom Horton, who will step down after American's bankrupt parent, AMR Corp , merges with US Airways.

In court papers filed on Friday in U.S. Bankruptcy Court in Manhattan, the U.S. Trustee Program, Justice's bankruptcy watchdog, said the severance package and other components of the plan violate bankruptcy laws.

AMR has filed a bankruptcy exit plan founded on its proposed merger with smaller carrier US Airways. While the plan has garnered support from most of AMR's creditors, it must still earn approval from the airline's bankruptcy judge, Sean Lane.

A handful of creditors, including bondholders and airport operators, have objected to the plan. Lane is expected to hear all objections and consider approval of the plan at a hearing on Aug. 15.

Tracy Hope Davis, the U.S. Trustee for the New York region, said Horton's parting gift defies bankruptcy laws that bar severance payments greater than 10 times the mean severance given to employees, and that are not part of a program applicable to all workers.

It is the third time Davis has called the payment into question. In March, when Judge Lane was considering approving the US Airways merger, Davis said AMR had not provided enough information about Horton's severance package.

Lane approved the merger, and the severance issue was effectively tabled until May, when Davis objected to an outline of AMR's bankruptcy exit plan on the same grounds.

Lane overruled the objection at the time, but AMR agreed to update its restructuring plan with more detail about the severance. Davis, still not satisfied, levied her latest objection on Friday.

The August 15 hearing is her last shot to convince the judge the severance package is unlawful before he issues a final ruling on whether the plan can go into effect.

Mike Trevino, a spokesman for American Airlines, said nothing in bankruptcy law prohibits Horton's pay package.

"AMR's creditors and shareholders have voted overwhelmingly to accept the plan which includes the" package, Trevino said, adding that AMR will file a formal response in court by Aug. 8.

AMR declared bankruptcy in 2011, and agreed to a merger plan with US Airways in February after initial resistance and hard-fought negotiations. Current AMR shareholders will get a 3.5 percent stake in the new airline, a rare example of a bankruptcy in which shareholders do not walk away empty-handed.

US Airways CEO Doug Parker would run the combined airline, but Horton would serve as non-executive chairman until the first annual shareholder meeting, probably in the spring of 2014, after which Parker would become chairman.

The case is In re: AMR Corp et al, U.S. Bankruptcy Court, Southern District of New York, No. 11-15463.

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UPDATE 3-Detroit retirees win seat at table in bankruptcy filing

Fri Aug 2, 2013 10:44pm EDT

By Nick Carey and Joseph Lichterman

DETROIT Aug 2 (Reuters) - In a high-stakes hearing on Friday in Detroit's bankruptcy filing, a judge approved a city plan to form a creditors' committee of retired workers, but gave unions and pension funds that opposed the plan a measure of satisfaction by declaring an independent trustee - and not the city - will select committee members.

Federal bankruptcy Judge Steve Rhodes' ruling on the city's effort to create a new negotiating partner independent of unions and pension funds was a key moment in a three-hour session that packed the largest courtroom in Detroit's downtown federal building. Rhodes also put off setting a date for a hearing on Detroit's eligibility to file for bankruptcy, while Detroit lawyers disclosed an ambitious aim to present a plan for reorganization by the end of 2013.

Detroit, whose course in bankruptcy court is being set by a state-appointed emergency manager, Kevyn Orr, set its target date at least three months earlier than the March 2014 deadline Rhodes previously had proposed.

Outside of court, Orr on Friday also proposed a new healthcare plan for city workers that would save Detroit $12 million annually by raising deductibles and trimming the number of available plans.

The next key step in the largest U.S. municipal bankruptcy case to date will be for the judge to set a trial date on whether Detroit is eligible for a Chapter 9 municipal bankruptcy. To remain in bankruptcy court, Detroit must prove it is insolvent and has negotiated in good faith with creditors owed more than $18 billion, or that there are too many creditors to make negotiating feasible.

Pension funds and unions representing city workers are expected to contest Detroit's eligibility.

An attorney for the city also disclosed Detroit is in regular but pointed dialogue with creditors even while in bankruptcy court. "There are significant differences that we feel will be difficult to breach," said David Heiman, an attorney who represents the city.

CONTENTIOUS COMMITTEE ISSUE

Detroit, a former manufacturing powerhouse and cradle of the U.S. automotive industry and Motown music, has struggled for decades as companies moved or closed, crime surged, and its population dwindled. The city's revenue fell short of spending, while city budgets and borrowing ballooned.

The city now says it can't afford to pay its retired workers the pensions and benefits they were promised. The committee that the trustee will select could help determine how much money and benefits the retirees may lose.

Unions argued the committee should include labor union representatives. They also asked the judge to adjust his proposed timetable for the case to allow the committee to become established and permit negotiation and mediation with the city.

U.S. Trustee Daniel McDermott will form the committee, though Judge Rhodes has the power to reject the committee's composition if it lacks adequate representation.

Brian O'Keefe, an attorney who represents associations of retired Detroit police, firefighters and city employees, said it was important the city not dictate the committee's composition.

"We were objecting to the fact that it seemed like the city wanted to be involved in the structuring of the committee and I think Judge Rhodes made it clear that it really will be up to the U.S. Trustee," said O'Keefe.

PENSION DISPUTE

The judge approved the city's offer to pay costs associated with the retiree committee's work. And Edward McNeil, the lead negotiator for a coalition of 33 of Detroit's 48 labor unions, told Reuters the union expects the city's funding to cover the cost of an independent actuarial study of the city's unfunded pension liability.

Orr, the city's emergency manager, contends the city faces $3.5 billion in unfunded liability, though the city prior to Orr's estimate in June had put the unfunded liability at $644 million for 2011. A larger unfunded liability could increase pressure on retirees and workers to make concessions to help Detroit fix its failed finances.

Estimates of pension valuations vary widely based on a number of factors, including return on investments and 30-year amortization of pension obligations. Rachel Barkley, a municipal credit analyst at Morningstar who studied the way Detroit calculated pensions valuations, said Detroit was within industry norms in its calculations.

"We feel an 8 percent investment return may not be conservative but definitely would be defensible by the city," she said.

BANKRUPTCY TIMELINE

Lawyers for some city unions argued Judge Rhodes' proposed schedule for the eligibility phase - at which the city must prove it belongs in bankruptcy - was too tight and left little time for discovery. Rhodes had proposed an Oct. 23 trial date.

"The whole schedule as a package is fairly aggressive," said Babette Ceccotti, a lawyer for the United Auto Workers, one of the city's unions.

Rhodes did not set a firm date for the eligibility trial and said he would consider concerns about scheduling and set an Aug. 21 date for the next hearing in the case.

During the hearing, Rhodes said he intends to appoint an examiner to review the fairness of fees charged by Detroit's lawyers and other service providers.

He gave the parties seven days to nominate candidates for the job. He also put off any action on a simmering debate over a deal Detroit struck with counterparties to interest-rate swap agreements that would save the city more than $70 million.

Detroit's target of filing a reorganization plan by year-end compares with the March 1 date proposed earlier this week by Rhodes. While the city would "enthusiastically accept" the judge's deadline, Heiman said, it wants to move faster.

"Our view is that time is our enemy," Heiman said. "The facts are not going to change no matter how long we wait. ... So we aim to file a plan by the end of the year."

The target date for Detroit's reorganization plan may prove tough to meet if recent municipal bankruptcies are any guide.

Stockton, California, took nearly a year just to prove its eligibility for Chapter 9 bankruptcy, and San Bernardino, California, is still awaiting a declaration more than a year after filing for protection.

Detroit's bankruptcy has drawn national attention at a time when many cities and states are dealing with budget deficits and pension crises.

St. Louis Federal Reserve President James Bullard, in remarks after speaking at a Boston conference Friday, warned bankruptcy will not be a quick fix.

"Declaring bankruptcy is no panacea," Bullard said. "It is not a solution. It is a mess."

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U.S. bankruptcy court to shed light on Detroit case timeline

By Karen Pierog

Fri Aug 2, 2013 12:59am EDT

Aug 2 (Reuters) - A court hearing on Friday may provide a roadmap for how Detroit's historic bankruptcy filing will unfold as the judge overseeing the case could set a speedy schedule, appoint a mediator and rule on other matters.

The hearing in U.S. Bankruptcy Court is a key step toward Detroit Emergency Manager Kevyn Orr's effort to see the city emerge from the largest U.S. municipal bankruptcy filing in history by September 2014. But Detroit must first prove it qualifies to file for bankruptcy and then file a reorganization plan.

U.S. Bankruptcy Judge Steven Rhodes on Tuesday proposed Oct. 23 for the start of a trial on potential objections to Detroit's eligibility to file for Chapter 9 bankruptcy. Detroit must prove that it is insolvent and that it made a good-faith effort to negotiate with creditors owed more than $18 billion, or that there are too many creditors to make negotiating feasible.

If the court does determine the city qualifies for bankruptcy, Detroit would have until March 1, 2014 to file a reorganization plan, according to Judge Rhodes' schedule.

That timeline is more ambitious in some areas than the one proposed by Orr after he filed the city's bankruptcy petition July 18.

In a court filing on Thursday, Detroit released a list of creditors including current, former and retired workers, that filled 3,504 pages. Prominent among them are bondholders and pension funds that will have, like other creditors, only until Aug. 19 to file their objections to the city's ability to remain in bankruptcy court.

That deadline and others Rhodes has proposed will be discussed at Friday's hearing, the second of many expected over the coming months. But even if Rhodes' schedule is adopted, the deadlines may not be set in stone, according to Jim Spiotto, a municipal bankruptcy expert at law firm Chapman and Cutler in Chicago.

"If people don't agree and become contentious it takes longer," he said.

Detroit workers, retirees and pension funds have already tried to derail the bankruptcy petition on Michigan constitutional grounds in state court. But Rhodes last week suspended their lawsuits, putting his court in full control of the case.

The schedules put forward by Orr and Rhodes would have Detroit moving through bankruptcy court more quickly than Stockton, California, which took nearly a year to pass through the eligibility phase alone. Detroit's debt load dwarfs that of Stockton, which listed liabilities of around $1 billion when it filed in June 2012.

On Friday, Rhodes is expected to address the court's "limited role" in a Chapter 9 bankruptcy. Unlike corporate bankruptcies under Chapter 11, a judge overseeing a municipal bankruptcy case cannot order the liquidation of assets. Nor can a judge order fee or tax hikes to satisfy debts.

Other items on the court's agenda for Friday include the setting of a briefing and discovery schedule requested by bond insurer Syncora Guarantee Inc, which is contesting Detroit's plan to end interest rate swap agreements at a discounted rate.

Detroit entered into the swap agreements with UBS AG, SBS Financial Products Company, and Merrill Lynch Capital Services in 2006 in conjunction with the issuance of taxable debt to fund its pension funds. The city is seeking to save $70 million by terminating the contracts.

Judge Rhodes is also expected on Friday to appoint a federal judge as mediator, a claims and noticing agent, and potentially an independent fee examiner for the case.

Detroit has filed a motion to create a retired employees committee, which would be expected to negotiate pension and health care benefits with the city. The city's two pension funds and some of its unions have filed objections to the move.

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FEATURE-Small manufacturers bet on Detroit brand despite bankruptcy

By Nick Carey

DETROIT | Fri Aug 2, 2013 12:59am EDT

DETROIT Aug 2 (Reuters) - For nearly six decades Detroit's story has been one of relentless erosion of its once mighty manufacturing base, but even as the Motor City faces a long bankruptcy a clutch of small producers has moved in to rekindle the "Made in Detroit" brand.

Making products ranging from bicycles to luxury watches and "sleeping bag" coats designed for the homeless, these small firms have tapped into a surprising amount of demand for goods made in a city more commonly associated today with failure and decline.

"Our customers come from all walks of life and are looking for a little bit of soul and something that is authentically Detroit," said Eric Yelsma, founder of Detroit Denim Co., which produces hand-made jeans. "We can't make them fast enough."

Unlike deep-pocketed Dan Gilbert, co-founder of online mortgage provider Quicken Loans who has helped spur a downtown boom here by moving in 9,000 employees and spending $1 billion in the process, Detroit's new entrepreneurs are winging it.

"None of us have ever done this before," said Zak Pashak, who has invested $2 million in Detroit Bikes, which will start production of its "urban bike" model in August and aims to build 40,000 bicycles a year.

"We just jumped in with both feet," said Pashak, who started out as a bar owner in his native Calgary and wound up in Detroit, a city he had admired since childhood for its Motown music. "America needs jobs, which is a good reason to start making stuff here again."

Detroit's manufacturing startups have yet to have much impact on a city unemployment rate that stood at 11.7 percent in June. As a whole, they have created only a few hundred jobs, just a fraction of the 7,700 manufacturing jobs created in the sector from March 2012 to March 2013 in the Detroit metropolitan area, according government data.

Small as they are, Detroit's manufacturing startups offer faint signs of economic diversification after decades of reliance on the automakers or grand schemes to revitalize Detroit such as casinos. They are also making relatively expensive niche goods in a city where consumer spending power has been battered for years.

"I think these small firms offer better hope for Detroit than any big answer," said Margaret Dewar, an urban planning professor at the University of Michigan. "The city has always looked for a big solution to its problems, which hasn't worked."

The auto industry built Detroit, drawing hundreds of thousands of jobs here. But as U.S. automakers shifted production elsewhere, the city's population fell from a peak of 1.8 million in 1950 to around 700,000, and only one large-volume auto plant still makes cars in the city. Detroit has long-term debt of more than $18 billion and on July 18 the state-appointed emergency manager, Kevyn Orr, filed for Chapter 9 bankruptcy protection, the largest ever U.S. municipal bankruptcy.

"LOOKING TO THE FUTURE"

Detroit's new entrepreneurs have come despite the city's strained finances, undaunted by the lack of street lights in many neighborhoods and patchy basic services like police and emergency services.

"Most of the people who have set up here are family and friends who have done so regardless of poor services," said David Egner, executive director of the New Economy Initiative, a $100 million fund to aid entrepreneurs in Detroit.

They are encouraged by Orr's plans to invest in services and infrastructure as part of the city's restructuring. "Once services improve, I think we'll see growth from companies outside that group of family and friends," Egner said.

The largest of the city's small newcomers is a watch maker called Shinola, a Depression-era brand name purchased in 2011 when the company set up shop. Dallas-based Bedrock Manufacturing, a venture capital firm backed by Tom Kartsotis, founder of accessory firm Fossil Inc., decided to take advantage of Detroit's underutilized workforce and resonant Made-in-America mystique.

"When we came here we found a lot of dynamic young people who were not focused on Detroit's past, but were looking to the future," said Bedrock CEO Heath Carr. "There is a movement in the United States for Made in America goods, but our question was would they support it with their wallets, because most things made here are more expensive."

Recent consumer research, including a Nov. 2012 Boston Consulting Group survey, indicates around 80 percent of U.S. respondents are willing to pay a premium for American-made goods.

Bedrock spent an undisclosed sum on equipment and on months of training for workers to assemble Shinola watches in a clean environment not far from downtown Detroit. The parts mostly come from Switzerland or China, but the company has two certified watchmakers on staff who can modify designs.

"It means a lot to me to be able to make these watches here in Detroit," said Jalil Kizy, a Detroit native and one of Shinola's two watchmakers. Until Shinola came along, Kizy was like many Michigan natives who have felt they would need to leave the state to find work.

Shinola's 75-person workforce has the capacity to produce 500,000 watches a year. The first batch of 2,500 watches, priced from $475 to $800 each, sold out in days early this year to buyers across the United States. The company has had teething problems delivering products, Carr said, in part because Shinola underestimated demand.

"It's a good problem to have," Carr said. "But we are working to manage customer expectations."

Shinola also assembles Shinola bikes here, competing with at least two other small-scale bike makers: Detroit Bicycle Company and custom bike builder Slingshot Bikes, which is relocating from Grand Rapids in western Michigan. Pashak's Detroit Bikes will employ 30 people when production begins in August.

"CRAZY OLD"

The city's new manufacturers face challenges common to many new businesses: managing consumer expectations while struggling to meet demand, finding qualified workers to ramp up production, or bearing the cost of training new ones.

Eric Yelsma formed Detroit Denim after losing his job selling specialty printing chemicals once oil hit $100 a barrel in 2008. Yelsma wants to expand Detroit Denim's four-person payroll, but few Americans know how to make jeans anymore.

"The labor pool for this business is pretty much minimal," he said. "So far, we've come up dry."

A local veterans' group is considering a plan to fund a six-month training course for three veterans to become "jean smiths" on what Yelsma describes as "crazy old" sewing machines, one more than a century old. Detroit Denim's jeans sell for $250.

Detroit Denim shares space with the non-profit Empowerment Plan, which makes sleeping bag coats for the homeless. Backed by Quicken Loans' Gilbert and Spanx founder Sara Blakely, Empowerment Plan makes coats from donated materials - insulation from General Motors and material from workwear brand Carhartt.

Veronika Scott, a 24-year-old graduate of Detroit's College for Creative Studies who founded Empowerment Plan, said most of the nine formerly homeless women she employs have found places to live since getting a job. Demand for the coats is strong enough that Scott is planning a "buy one, give one" program this fall: for $200, customers will get a coat and have one donated to a homeless person.

Andrew Pierce, U.S. president of marketing consultancy Prophet, said Detroit's new manufacturers are tapping into Detroit's reputation much as U.S. automaker Chrysler has with its "Imported from Detroit" commercials.

"The Detroit brand is very authentic and a little bit gritty in a good way," Pierce said. Beyond a growing desire for American-made goods, the attraction of Detroit "is that part of the American dream is all about the rebuild out of a crisis."

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Even when jobs return, Detroit's workers fall short on skills

By Nick Carey

DETROIT | Fri Aug 2, 2013 1:00am EDT

DETROIT Aug 2 (Reuters) - Detroit emergency manager Kevyn Orr has a long list of things to fix in the city and among them is one that may sound surprising: there are not enough skilled workers to fill job openings as they become available.

"Every problem in this city revolves around jobs," said Lindsay Chalmers, vice president of non-profit Goodwill Industries of Greater Detroit. "That's at the heart of the issue for Detroit."

The decline of manufacturing jobs, above all in the automotive industry, has played a major role in the slide of the Motor City's population to 700,000 from a peak of 1.8 million in the 1950s. Despite recent gains, Michigan has 350,000 fewer manufacturing jobs than in 2000.

Seismic shifts in the local labor market have left many unskilled workers behind.

"In the old days you could graduate on Friday, get hired at the Ford plant on Monday and they'd train you," said Sheldon Danziger, a professor of public policy at the University of Michigan. "But in Detroit as in other manufacturing cities, employers are demanding that workers come to jobs with more skills than they used to have."

There are jobs on the horizon for Detroit, with some $8 billion in potential infrastructure investments including a light rail line and a new bridge to Canada, which alone is expected to generate 25,000 jobs. Once these projects begin, they are expected to fuel a surge in service-related jobs.

But Pamela Moore, chief executive of Detroit Employment Solutions Corporation (DESC), a non-profit focused on retraining the city's unemployed, said Detroit's labor force is unprepared for the jobs that may be coming.

"The question is whether we can prepare a lot of people in Detroit for those jobs," Moore said. "Right now, a lot of them don't have the necessary skills."

"SETTING THEM UP FOR FAILURE"

Detroit's official unemployment rate topped 11 percent in June, well above the national rate of 7.6 percent for that month. Taking into account people who have given up looking for work or may never have worked, unofficial estimates put the jobless rate at well over 20 percent.

Public-sector efforts at job training have shown scant results. After then-governor Jennifer Granholm established a $500 million job training program in 2007, roughly $100 million was spent in Detroit through 2010, but few got jobs because so few positions were available, said Jose Reyes, chief operating officer of the DESC job training agency.

"In many ways, we set them up for failure," Reyes said.

The not-for-profit sector is trying to step in. Goodwill Industries has formed businesses in Detroit that it uses to train workers. An automotive supply business fills orders for Ford, Chrysler and GM, and a company called Green Works strips down power generators, mostly from local power company DTE Energy, for copper and other metals that it sells to customers.

"We cannot do everything for the folks here, but we can get them on the bottom rung of the economic ladder," said Green Works president Jay Wilber.

Kim Allen, 47, served two 10-year prison terms including for second-degree murder before landing a temporary, part-time job with Green Works in 2011. Now a permanent employee, she aims to take a welding course Green Works offers.

"This job has given me an opportunity we ex-cons usually don't get," she said. "Now it's time to keep moving up."

DESC's Moore said many Detroiters lack "soft skills" such as showing up for work, or even staying off cell phones during job interviews. In some cases, she said, "no one in their families has worked for two generations."

In the last three years, Detroit has cut the city workforce by more than 2,700 workers, to 9,560.

Jim Jacobs, president of Macomb Community College in the Detroit suburb of Warren, said Detroit's chief labor problem remains a lack of demand.

At Detroit's high unemployment levels, employers in the Detroit area can "afford to be picky," Jacobs said.

"Workers here often need training for new skills, but why should an employer bother doing that when there are thousands of workers to choose from?" he said.

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COLUMN-Should you worry about Detroit's pension woes?

Tue Jul 30, 2013 2:26pm EDT

By Mark Miller

CHICAGO, July 30 (Reuters) - The news from Detroit is enough to rattle anyone relying on a traditional pension: an unprecedented bankruptcy filing by a major U.S. city that opens the door to possible sharp cuts in benefits.

It's still far from clear that the courts will let Detroit slash pension benefits as part of its bankruptcy filing. But is the city's situation a harbinger of things to come for Americans relying on traditional defined benefit pensions?

The answers are important for millions of American workers and retirees. Although we hear constantly that pensions have gone the way of the dinosaur, in the public sector, 83 percent of workers still had access to a traditional pension plan in 2010, according to the U.S. Bureau of Labor Statistics.

And 35 percent of Fortune 1000 companies still sponsored active pension plans in 2011, though that figure is down sharply from 59 percent as recently as 2004, according to employee benefits consulting firm Towers Watson.

Most private-sector pensions are protected from plan failures by the Pension Benefit Guarantee Corporation (PBGC), the federally sponsored insurance backstop. If a plan is terminated due to bankruptcy, the PBGC has been known to take steps to stop companies from dumping their pension plans.

When PBGC does take over a plan, the majority of workers receive 100 percent of what they earned - but only up to the point of the plan's termination. PBGC payouts are capped by law, using a formula based on your age at the time the plan is terminated, and it is updated every calendar year.

For 2013, the maximum annual guaranteed benefit for a 65-year-old retiree is $57,500

PBGC protection isn't available for public sector pensions. It's rare to see governments attempt to use bankruptcy to restructure obligations. Although municipalities can use this maneuver in some instances, it is not an option for states, which are sovereign entities with taxing authority and constitutional requirements to balance budgets.

Moreover, many public sector pension plans are backed by state laws that guarantee benefits. The constitutions of seven states contain benefit guarantees, according to an analysis by the Center for Retirement Research at Boston College (CRR). Another 34 states have laws, or rely on judicial decisions, that treat pension benefit promises as contractual guarantees.

Michigan is one of the states with a constitutional guarantee. So, even if a bankruptcy court does allow Detroit to cut pension benefits, the matter would be far from settled. "It would be appealed almost immediately to the U.S. Supreme Court," says Hank Kim, executive director of the National Conference on Public Employee Retirement Systems. "It would set up a Constitutional crisis, with the Court asked to decide which is superior - federal bankruptcy law or a state constitution?"

But even if the courts decide that state laws govern situations such as Michigan's, that doesn't mean pensions are fully protected. For example, the Michigan constitution only guarantees benefits that have been already earned, or accrued. That means current retirees and those close to retirement should receive their full benefits, but younger workers could face cuts.

"If you're retired or close to it, you'd probably be OK," says Diane Oakley, executive director of the National Institute on Retirement Security. "If you're in your 20s or 30s, you'd be more likely to face cuts. But if you're that young, you're probably more worried about whether you have a job or not."

And in some states, the legal protections only apply to core benefits, leaving room for adjustments to future earned benefits on features. Many states already have increased employee contribution rates, tightened age and tenure requirements for benefits or reduced cost-of-living adjustments.

GAUGING PLAN HEALTH

If you're worried about a pension, the key figure to watch is your plan's funded status - that is, the percentage of assets on hand to pay promised benefits. Actuaries generally use 80 percent as a floor for safe funding levels. But the figures depend heavily on the assumptions by fund managers on their expected rate of return on portfolios over time. And those assumptions have become very controversial.

Most state and municipal pension funds assume a long-term rate of return around 8 percent, reflecting a portfolio invested in equities, bonds and alternative assets such as hedge funds. That number reflects the approach preferred by actuaries, and most funds have made or beat that number over the past 25 years, according to data from Callan Associates, an investment consulting firm.

Economists prefer a more conservative figure - a so-called "riskless rate of return" figure tied to bond rates, which is closer to 4 or 5 percent.

These investment assumptions matter - big time. A CRR review of 126 public plans found that they were 73 percent funded using the more optimistic 8 percent return assumption - but just 50 percent using a more conservative 5 percent figure.

Beyond the pension plan itself, Oakley says it is important to consider the health of the sponsor. "Detroit's plans are mature - they have more retired than active workers, and government is shrinking there because the population is shrinking. But if you're in a plan in a place where the population is pretty stable, and the plan is fairly well funded, your plan probably has enough flexibility to make whatever adjustments it needs to make to get by."

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